Latest figures show wages including bonuses were up by 8.2 per cent in June, soaring ahead of the expected 7.4 per cent and hitting the fastest pace of growth since monthly statistics were first measured in 2001. One-off NHS bonuses played a large part in the rise.
ONS director of economic statistics Darren Morgan said: “Earnings continue to grow in cash terms, with basic pay growing at its fastest since current records began. Coupled with lower inflation, this means the position on people’s real pay is recovering and now looks a bit better than a few months back.”
With inflation falling to 7.9 per cent in June, it means that pay for the month rose faster than prices, in what could be seen as a key signal of the end to the cost of living crisis.
But the rise appears all but certain to encourage the Bank of England to hike interest rates even further than previously expected. Even before the latest data, Bank of England Governor Andrew Bailey and chief economist Huw Pill had said wages were rising too fast to bring inflation under control.
When the Bank announced its 14th consecutive interest hike, to 5.25 per cent, earlier this month, Bailey said that even though inflation was falling, “the thing that hasn’t corrected itself is pay”.
City traders are already betting on higher interest rates on the back of the new data. They now see a rate rise next month as guaranteed, and believe rates will peak at 6 per cent, rather than the previous expectation of 5.75 per cent.
Richard Carter, head of fixed interest research at Quilter Cheviot, said: “The Bank of England will be studying this week’s data carefully, but even if inflation falls as expected in tomorrow’s CPI print following a drop in energy prices, the inflationary pressure of still rising wage growth means the Bank is unlikely to put a halt on further rate rises just yet.
“What’s more, even if inflation does come in lower than wage growth tomorrow, very few people will feel any real benefit. Rising mortgage rates and high everyday costs continue to put a strain on personal finances, particularly as lower inflation will take some time to feed through to the prices people are paying.”
Excluding bonuses, wages are up by 7.8 per cent, again ahead of economists’ expectations of a 7.4 per cent rise.
Meanwhile, there may be signs that the latest interest rate rises are keeping people out of work for longer as firms become more cautious in hiring, as unemployment rose to 4.2 per cent. That defied the expectations of ecnomists, who had expected the jobless rate to hold steady at 4 per cent.
Morgan said: “The number of unemployed people has risen again while the number of people working has fallen back a little. This is mainly due to people taking slightly longer to find work than those who started job hunting in recent months. The drop in those neither working nor looking for work is mainly among those looking after their family or home. Meanwhile the number of people prevented from working by long-term sickness has risen again to a new record.
“Job vacancies have now fallen over a quarter of a million since this time last year. However, they remain significantly above pre-COVID levels.”