UK regular pay growth highest since 2001 while unemployment rate rises unexpectedly; Bank of Russia to hold unscheduled meeting to prop up rouble
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said:
For now, wages still are rising too quickly for the monetary policy committee to tolerate indefinitely.
As things stand, we still expect the MPC to raise Bank Rate by 25bp in September, and then leave it at 5.50% at the remaining meetings of this year. The momentum in wage growth still is too strong for the committee to take a break just yet.
There are signs the cost of living could finally start to ease after record annual pay growth drove pay above inflation for the first time in over one-and-a-half years.
This above-expectations wage growth will be watched nervously at the Treasury as it threatens to add fuel to the triple lock fire. The wages element of the triple lock – annual earnings growth for May to July – won’t be available until next month but this outcome suggests it could be significant. Moreover, strong wage growth is likely to impair the retreat of inflation in the coming months, and the Bank of England recently warned that the pace of wage growth is a threat to its longer-term inflation target of 2%.
While the consumer prices index for July due tomorrow is widely expected to show a fall in the headline annual inflation rate, there are reported fears in Whitehall that subsequent months could reveal a plateau or even a tick back up in the rate. The inflation reading for September, or a possibly even-more racy wage growth figure, will determine what could be a very substantial rise in the state pension and reignite the debate over whether the triple lock is sustainable.
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