DOUBTS over whether the Bank of England will raise UK base rates next month have been fuelled by official data showing average pay continues to fall in real terms.
Figures published yesterday by the Office for National Statistics show that, in the three months to August, average weekly earnings for employees in Great Britain, excluding bonuses, were in real terms down by 0.4 per cent on a year earlier.
Average earnings were up by 2.1 per cent in nominal terms on a year earlier in the three months to August, with this increase significantly adrift of annual UK consumer prices index inflation.
Figures published on Tuesday showed annual UK CPI inflation surged to a five-year high of three per cent in September, reinforcing the squeeze on consumers. It was only 0.3 per cent in May last year, ahead of the Brexit vote. Sterling’s post-Brexit vote weakness has fuelled inflation.
A Bank of England statement after its Monetary Policy Committee’s September meeting had signalled most members of the nine-strong committee were minded to raise rates in “coming months”.
Bank deputy governor Sir Dave Ramsden told the Treasury Select Committee on Tuesday he was not among this majority. Specifically, he noted there was little sign of inflation building in the labour market.
Yesterday’s figures signal a continuing lack of wage inflation pressures.
Liz Cameron, chief executive of Scottish Chambers of Commerce, said: “With inflation continuing to rise, and many industry sectors observing pay growth below two per cent, the Bank of England must hold their nerve on interest rates. An increase at this point would damage consumer confidence and spending at a critical period for the retail sector.”
Howard Archer, chief economic adviser to the EY ITEM Club think-tank, said: “The latest labour market and earnings data fail to provide a decisive case for the Bank of England raising interest rates in early November. Improvement in the labour market showed overall signs of slowing while earnings growth remained muted.”
He added: “With inflation rising to three per cent in September, the [UK] unemployment rate down at 4.3 per cent and the MPC recently adopting a markedly more hawkish tone, the odds still favour an interest rate hike from 0.25 per cent to 0.5 per cent on November 2. However, ongoing muted earnings growth, lacklustre economic growth and Brexit uncertainties are significant factors that are likely to deter some MPC members from favouring [a] hike.”
Calling for Chancellor Philip Hammond to lift public sector pay caps in next month’s Budget, Trades Union Congress general secretary Frances O’Grady said: “The Chancellor must help struggling families. This means ditching artificial pay restrictions on nurses, midwives and other public sector workers.”
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