James Smith, developed markets economist at ING, points out that at 3.6%, UK wage growth (excluding bonuses) has reached another post-crisis high and remaining one of the few remaining hawkish factors for the Bank of England.
Key Quotes
“It has been a key ingredient in policymakers’ recent signal that rates may need to rise if Brexit goes smoothly.”
“Well, from a structural standpoint, the signs suggest that the upward pressure on wages is likely to persist. The recent uplift in pay is linked to skill shortages in various industries - most notably in construction, IT & hospitality, according to last year’s Employer Skill Survey.”
“Vacancies, while still high, fell for the fifth consecutive month and this tallies with the more lacklustre employment growth – the 3M/3M change in employment slipped to 28,000 in the latest data for May. The latest Markit/RECS jobs report also hints at a slower pace of wage growth, with permanent starting salaries softening to a 25-month low. Bank of England Agents have found a similar story.”
“For now, we think wage growth will continue to act as one of the few remaining hawkish factors for the Bank of England. Partly for this reason, we think it is too early to pencil in rate cuts in the UK.”
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