Wage growth in Britain slightly decreased
In the United Kingdom, wage growth has slightly weakened before the Bank of England's interest rate decision at the beginning of August. Wages grew by 5.7% above the level of a year ago in the months of March to May, according to the National Statistician's Office (ONS) on Thursday.
This is the lowest value since the summer of 2022. Experts had expected growth of 5.7%, following a rate of 6.0% in the period of February to April. The Bank of England (BoE), which decides on interest rates on 1st August, aims for an inflation rate of 2.0%.
It closely monitors the labour market and wage growth development. Despite the recent decline, wage growth is still considered too high to significantly push the overall inflation rate towards the 2.0% target. According to Yael Selfin, Chief Economist at KPMG UK, the Bank of England (BoE) may not be ready to risk a rate cut in August before the labour market has cooled down sufficiently.
Inflation, however, is proving to be more persistent than anticipated. The inflation rate for consumer prices did not decrease as expected by experts in June and remained at 2.0%. Strong price increases in the hotel sector contributed to the fact that the inflation rate did not decrease. This could cause concerns for the BoE regarding the persistent strong price growth in the service sector. These considerations could contribute to the markets' view that the rate cut will only go ahead in September.
Before August, Britain's wage growth showed a slight decrease, contradicting the expected 5.7% growth, as mentioned in the Bank of England's (BoE) interest rate decision. Despite this before-August dip in wage growth, it remains above the 2.0% inflation rate target set by the BoE, suggesting an ongoing perspective of high wage growth affecting overall inflation.
