Official figures released by the Office for National Statistics (ONS) have dealt a blow to hopes of a pre-election interest rate cut by the Bank of England. The data showed no progress in bringing down the pace of wage growth, with basic pay rising at an annual rate of 6% in the three months to April.
This figure, unchanged from the previous two months, was driven by the government’s 9.8% increase in the National Living Wage, which came into effect in April. When accounting for inflation, the wage rate reached its highest level since July 2021 at 2.9%. The measure that includes bonuses also rose to 5.9% from 5.7%.
While this news may be positive for voters, as it leaves pay growth more than double the 2.3% inflation rate, it is unlikely to convince the Bank of England to cut interest rates. The bank is set to reveal its decision on 20 June and Chancellor Rishi Sunak has been vocal about his desire for a rate cut to bolster the economy.
The latest employment figures from the ONS are the last before polling day on 4 July and show a rise in the unemployment rate to 4.4% from 4.3%. However, the ONS has cautioned that the reliability of these figures may be affected due to ongoing issues with its labour force survey.
The ONS also reported a rise in the number of people of working age who are economically inactive, which now stands at 9.4 million. This increase is attributed to a rise in long-term sickness and care demands.
In a statement, the ONS noted, “This month’s figures continue to show signs that the labour market may be cooling, with the number of vacancies still falling and unemployment rising, though earnings growth remains relatively strong.”
The mixed picture presented by the data may have some influence on the Bank of England’s decision, as it signals potential damage to the economy from higher interest rates. The bank has hinted at a rate cut in the coming months, but remains concerned about inflation and the pace of wage growth fueling price rises.
While basic pay increases have outpaced inflation since last June, household budgets have still been squeezed. This cost of living crisis has even impacted the Bank’s efforts to suppress inflation, as 14 consecutive interest rate increases from December 2021 to last summer drove up the cost of borrowing.
Financial markets currently suggest only a 10% chance of a rate cut on 20 June, with most predicting a cut in September. However, these predictions may shift following the release of preliminary growth figures for the economy in April and the latest inflation figures in the following weeks.
In response to the jobs data, opposition parties have criticized the Conservative government’s handling of the economy. Shadow Work and Pensions Secretary Liz Kendall stated, “Today’s figures confirm that the Tories have no hiding place after 14 years of abject failure.” She outlined Labour’s plans to boost the economy and support job growth.
Liberal Democrat Treasury spokesperson Sarah Olney also criticized the Conservative government, stating, “This Conservative carousel of chaos has our economy on a rollercoaster ride and the British people are sick and tired of it – it’s time for a change.”
