The news from the Office for National Statistics (ONS) that wages rose at their fastest rate in 20 years between October and December, has raised fears among some economic commentators that the Bank of England (BoE) will be forced to raise the base rate to new heights when the Monetary Policy Committee (MPC) meets again on 23 March.
On 2 February, the MPC raised the rate to four per cent, the tenth consecutive increase. The move took the rate to its highest level for more than 14 years.
However, the ONS report that the average wage for UK workers, excluding bonuses, rose 6.7 per cent could see the base rate rise even higher.
Ashley Webb, UK economist at Capital Economics said: “December’s labour market data showed that, despite an easing in labour demand, labour market conditions stayed tight and the market continued to support strong wage growth.
“The BoE will be increasingly concerned about the persistence of domestic inflationary pressures as private sector wage growth exceeded its forecast. This supports our view that the Bank of England will have to raise interest rates from four per cent now to a peak of 4.5 per cent in the coming months.”
William Schomberg, chief UK economics correspondent at Reuters, also commented on a potential upward path.
He tweeted: “Today’s jobs data in a nutshell – basic pay is accelerating too quickly for the BoE to stop raising interest rates but there are some signs of a cooling in the labour market.”
Pay growth peak could stop base rate rises
However, there are others who believe that the rate has reached its limit and will now start to plateau.
Speaking to the Telegraph, Yael Selfin, chief economist at KPMG UK, said she felt the strong figures could reflect a turning point.
She said: “Regular pay growth could be around its peak already, and may average six per cent over 2023, which would ease the pressure on the BoE to raise interest rates further.”
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, agreed that the MPC was likely to stick rather than twist.
On Twitter, he said: “The annualised rate of [quarter on quarter] growth in private-sector wages excluding bonuses — highlighted by the MPC in the minutes — fell to 6.9 per cent in December, from 7.5 per cent in November. That should boost the MPC’s confidence in its forecasts and the chances that it opts to keep bank rate at four per cent next month.”
