Bank of England worries real earnings growth is highest since 2021

The pace of pay rises has slowed less than expected, according to the latest official data, meaning real earnings growth, adjusted for inflation, will reach its highest level in almost two-and-a-half years.

The Office for National Statistics (ONS) said average fixed pay (excluding bonuses) rose by 6% in the three months to February compared with the same period last year.

In real terms, after accounting for inflation, wage growth on the same basis was 2.4%, the highest since July 2021, the report said.

The base was higher than economists’ expectations of 5.8% and just down from 6.1% last month.

Figures including three-month rolling bonuses are unchanged.

These numbers, while welcome on the surface for struggling families, can be worrying reading bank of england, The agency is assessing the timing of a long-awaited rate cut as it fights inflation.

It wants to see wage growth slow significantly, amid concerns that higher incomes could spur demand across the economy and, in turn, prices.

Wider data from the Office for National Statistics (ONS) showed that the UK unemployment rate rose to 4.2% from 3.9%, although the statistics agency continued to issue a serious health warning about the figure as it continues to work on improving the reliability of employment data.

Liz McKeown, director of economic statistics at the ONS, said: “The recent trend of falling job vacancies and slower earnings growth has continued this month, albeit at a slower pace.

“But with inflation also slowing, real income growth has increased and is now at its highest level in almost two and a half years.

“At the same time, we are now seeing the first signs that the jobs market is starting to cool, with our surveys showing a fall in overall employment and total employment falling in HMRC data.”

The central bank’s prescription of raising interest rates since December 2021 to combat inflation has resulted in higher borrowing costs for businesses and consumers, exacerbating financial pain from the start. cost of living crisis It is trying to eradicate.

Newest inflation Data released on Wednesday is also expected to show further progress towards the central bank’s target and the prospect of cutting interest rates from the current level of 5.25%.

Economists polled by Reuters expected the consumer price index (CPI), a measure of inflation, to slow to an annual rate of 3.1% in March.

This is down from the current 3.4%.

It is widely believed that changes in energy prices will soon push CPI below the central bank’s 2% target, but policymakers have expressed concerns that inflationary factors will pick up later this year.

That’s why economists and financial markets are divided over the timing of a possible rate cut.

Some still expect June, while others predict the central bank will wait until August because of so-called upside risks, such as through Oil prices soar The instability in the Middle East has attracted people’s attention.

LSEG data showed a change in bets in June following the release of Office for National Statistics (ONS) figures.

The Bank of England’s actions to curb price growth were a major factor in the economy slipping into recession in the second half of last year.

Data since then have shown a return to modest growth.

Paul Dales, chief UK economist at Capital Economics, said of the key pay data: “Weak economic activity suggests pay growth will slow more quickly soon.

“The labor market softened more sharply than expected in February, suggesting wage growth will continue to slow over the next six months, although the pace of decline appears to have slowed.”