Record UK Wage Growth Isn't as Hot as It Seems
A giant pay deal at the NHS drove a big increase overall, sending mixed signals to the Bank of England.
At first glance it seems completely logical that Tuesday’s super-strong wage data ought to lead to yet more interest-rate hikes from the Bank of England. I’d say, not so fast. While much of the higher-than-expected pay gains was driven by recent deals for the National Health Service and other public-sector employees, including one-off bonuses, the rest of the report shows clear signs that the tight UK labor market is finally turning.
A more confident monetary policy committee would take as reassurance that its 14 consecutive rate hikes were having the desired effect. Sadly, we have policymakers more focused on nailing down every last inflationary impulse than the recessionary writing on the wall. The better-than-expected second quarter gross domestic product offers false hope that the economy is strong enough to withstand more monetary tightening. Yet, sterling money markets price in a 25 basis points hike at the next meeting on September 21, and two further rises to a 6% peak.