UK Wage Growth Steady at 5.4%, BoE Monitors Inflation Impact
British average weekly earnings rose 5.4% in Q2 2024, matching forecasts. The Bank of England closely watches wage growth as it balances interest rates and inflation targets.
The Office for National Statistics (ONS) reported that British average weekly earnings, excluding bonuses, increased by 5.4% in the three months leading to June 2024. This figure aligns with economists' predictions, as surveyed by Reuters.
The Bank of England (BoE), founded in 1694 and the world's second-oldest central bank, is closely monitoring wage growth trends. On August 1, 2024, the BoE reduced interest rates after maintaining them at a 16-year high of 5.25% for nearly a year. The central bank's Monetary Policy Committee, which convenes eight times annually to set interest rates, remains vigilant about wage growth's potential impact on inflation.
Current wage growth rates are approximately double what the BoE considers compatible with maintaining its 2% inflation target, established in 2003. The bank anticipates that inflation data, set to be released on August 14, 2024, may show figures exceeding this target.
However, employers foresee a potential easing of wage pressure in the coming year due to lower headline inflation. The Chartered Institute of Personnel and Development (CIPD), a professional association for human resource management, reported that employers expect to raise pay by 3% - the lowest projection in two years. Similarly, a BoE survey indicated anticipated pay rises of 4.1%.
In the public sector, which employs approximately 5.7 million people as of 2024, significant pay increases have been approved. Rachel Reeves, the newly elected Labour Party finance minister, sanctioned pay rises of at least 5% for millions of public sector workers. Notably, junior doctors, who are qualified medical practitioners working in hospitals but not yet consultants, will receive a 22% increase over two years, resolving a prolonged industrial dispute.
"The BoE is more focused on growth in private-sector pay, which it says has a more direct impact on inflation."
The BoE's primary focus remains on private-sector pay growth, which it considers to have a more direct influence on inflation. The bank projects this growth to decelerate to 5% in the final quarter of 2024 and further slow to 3% by late 2025.
As the UK maintains its position as the world's sixth-largest economy in 2024, the interplay between wage growth, inflation, and economic stability continues to be a critical focus for policymakers and economists alike.
