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"Bank of England must weigh whether the current elevated wage growth is a temporary anomaly or a more enduring threat to its inflation target"

ended 12. November 2024

The latest labour market data was published this morning. Newspage asked economists for their views, which can be found below.

3 responses from the Newspage community

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Editor
Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
With UK wage growth remaining stubbornly high, the focus is now on the Bank of England’s December meeting, where the policy makers are likely to exercise caution and hold rates steady. The latest ONS labour market data shows wage growth proving more resilient than anticipated, presenting an additional challenge for the central bank’s monetary policy stance. In the previous quarter, regular pay growth, excluding bonuses, eased only marginally to 4.8%, however more concerning was the increase in total pay growth, which rose considerably above expectations to 4.3%. This sharp increase was driven by the one-off payments made to public sector workers, although close attention will be paid to next quarter's figures, which will capture any initial impact following the budget. This data comes at a crucial time. The Bank of England must weigh whether the current elevated wage growth is a temporary anomaly or a more enduring threat to its inflation target.
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Editor
Stephen Perkins
Managing Director at Yellow Brick Mortgages
Most of the labour market indicators have been largely unchanged, but these only cover the period up to October and therefore pre-Autumn Budget. It’s expected the changes to employers National Insurance and minimum wage will lead to more distinct changes on the next report. However, many small businesses may be reducing headcount or at least reducing vacancies, so the next quarterly report will be without festive cheer.
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Platinum
John Choong
Head of Equities and Markets at Interpretiv
Although the huge uptick in the unemployment rate may excite rate cut advocates, this appears to be a continuation of the ONS's sampling errors from its labour force survey, rather than any substantial labour market deterioration. While wage growth continues to cool, regular earnings remain well above their pre-pandemic average of c.3.5%, which will continue to concern the MPC's more hawkish members — in particular, Catherine Mann, who emphasises that above-trend wage growth will fuel inflation if productivity gains don't keep up at the same pace. The wage growth outlook remains challenging, too, as third party surveys show sticky wage expectations for the year ahead, suggesting we're nearing a floor in the decline. Add looming minimum and living wage increases, and the path to lower wage growth looks complex. Given these dynamics, we maintain our view that the BoE has concluded its rate-cutting cycle at 4.75% for 2024, with the next cut only expected in February 2025.