Last Updated on Tuesday, 13 June, 2023 at 11:11 am by Andre Camilleri
Wages in the U.K. spiked sharply in April, official figures showed Tuesday, a development that is set to cement expectations that the Bank of England will raise interest rates once again next week.
The Office for National Statistics found that people’s regular pay packets, which exclude bonuses, were up 7.2% in the three months to April from the same period the year before, as against the equivalent 6.6% increase recorded in January.
The spike, which was largely due to a near-10% increase in the minimum wage at the start of April, was the highest on record aside from the period of the coronavirus pandemic when the figures were heavily distorted.
Though wages are still lagging the headline rate of inflation, which at the last count stood at 8.7%, the increase is likely to feature heavily in next week’s deliberations among rate-setters at the Bank of England. Higher wages raise the prospect of more spending in the economy, which can fuel price rises.
Hannah Slaughter, senior economist at the Resolution Foundation, said this “welcome news” for workers will “worry the Bank, and by extension anyone looking to remortgage, as it adds to the case for raising interest rates for longer.”
Like other central banks around the world, the Bank of England has sought to keep a lid on inflation, which over the past year has been fueled by Russia’s invasion of Ukraine. That sent energy prices soaring, a development that then led to price increases across a wide array of goods and services.
The Bank of England has sharply increased its main interest rate to 4.5% from a low of 0.1% in late 2021. Higher interest rates help lower inflation by making it more expensive for households and businesses to borrow, meaning they potentially spend less, thereby reducing upside demand pressure on prices.
Separately, the statistics agency said the country’s jobless rate fell to 3.8% in the three months to April, from 3.9% in March. Most economists had been expecting the rate to edge up to 4%.
As the unemployment rate fell, the agency said, the country’s employment rate rose to 76% from 75.9%, with the number of people in work at an all-time high of 33.1 million.
Darren Morgan, director of economic statistics at the agency, said the “biggest driver” in recent jobs growth is health and social care, followed by hospitality.
Though Tuesday’s figures were broadly positive, there are still a number of issues surrounding the U.K.’s labor market, with the economy barely growing and inflation running higher than many policymakers would have hoped.
Ben Harrison, director of the Work Foundation at Lancaster University, said the U.K., with 2.55 million people long-term sick, is the “worst performer” among the Group of Seven leading industrial nations for workforce participation since the start of the coronavirus pandemic more than three years ago.