Wage growth hits six-month high ahead of Bank of England interest rate decision – what it means for YOUR money
UK average earnings have hit a six-month high, according to the Office for National Statistics (ONS).
UK average wages rose by 5.6% in the three months to November, up from 5.2% for the previous three months.
Meanwhile, annual average earnings were up 2.2% from the year before, the ONS said.
The latest data means wages in the three months to November are outstripping inflation, which is currently at 2.5%.
Commenting on today’s labour market figures, ONS director of economic statistics Liz McKeown said: “Pay growth picked up for a second consecutive period, again driven by strong increases in the private sector. Real pay growth, which excludes the effects of inflation, increased slightly.”
But the figures also revealed that unemployment has continued to rise.
The ONS said unemployment rose to 4.4% between September to November, from 4.3% for the previous three months.
The figures were the first to take into account possible early reaction to the Budget.
Rachel Reeves announced a raft of changes in her first Budget including increasing the rate of National Insurance that employers pay and pushing up the minimum wage.
Today’s figures could suggest some employers were eager to hold onto staff by increasing their pay at a time when others were keen to cut costs.
The report follows recent market turmoil, which is partially linked to concerns about the state of the UK economy.
The government has increased its borrowing, which has put a strain on the Chancellor Rachel Reeves’ spending rules.
As a result, her management of the economy has been put under greater focus.
Last Friday’s data revealed that retail sales were weak in December.
Meanwhile, sterling fell again on the back of growing expectations that signs the economy is flatlining would give the Bank of England more room to cut interest rates.
Key economic figures, including the Bank’s newest rate-setter, believe the cost of borrowing will be cut four times this year.
The market has only fully priced in two reductions.
Investors currently see an 84% likelihood that the Bank of England cuts rates from 4.75% to 4.5% in its next meeting on February 6.
Luke Bartholomew, Deputy Chief Economist at abrdn, said: “The big test for the labour market remains how firms will respond to the increase in National Insurance and the National Living Wage this spring.
“So far, surveys seems to suggest both weaker hiring intentions and the possibility of another round of price and wage increases.
“So until there is clarity on that the Bank of England is unlikely to move away from its “gradual” mantra on rate cuts. But for now, there is nothing in this data that will derail a February cut from the BoE.”
Why does inflation matter?
INFLATION is a measure of the cost of living. It looks at how much the price of goods, such as food or televisions, and services, such as haircuts or train tickets, has changed over time.
Usually people measure inflation by comparing the cost of things today with how much they cost a year ago. The average increase in prices is known as the inflation rate.
The government sets an inflation target of 2%.
If inflation is too high or it moves around a lot, the Bank of England says it is hard for businesses to set the right prices and for people to plan their spending.
High inflation rates also means people are having to spend more, while savings are likely to be eroded as the cost of goods is more than the interest we’re earning.
Low inflation, on the other hand, means lower prices and a greater likelihood of interest rates on savings beating the inflation rate.
But if inflation is too low some people may put off spending because they expect prices to fall. And if everybody reduced their spending then companies could fail and people might lose their jobs.
See our UK inflation guide and our Is low inflation good? guide for more information.
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