UK's Accelerating Wage Growth Highlights BoE's Inflation Caution

• British pay growth accelerated in late 2024, according to data that suggested the jobs market was holding up and underscored why the Bank of England has been cautious about cutting interest rates, despite a weak overall economy.
• Private-sector pay excluding bonuses - the BoE's main gauge of domestic inflation pressure - rose by 6.2% compared with the same period a year earlier, the fastest pace in a year, the Office for National Statistics said.
• The sterling rose against the dollar and investors trimmed their bets on the pace of future BoE rate cuts following the release of the official data, which painted a less weak picture of the labour market than some recent surveys. Still, ING economist James Smith said that could change. "Redundancy levels are low, but the major risk is that begins to change ahead of tax hikes in the spring. A cooler jobs market should help wage growth come gradually lower as the year goes on," he said.
• Employers say finance minister Rachel Reeves' plan to boost the social security contributions they pay from April - when Britain's minimum wage is also due to rise by almost 7% - will reduce hiring and wage growth. However, the pace of pay increases has remained far above levels consistent with the BoE's 2% inflation target.
• BoE Chief Economist Huw Pill told Reuters last week that he believed the main problem for Britain's sluggish economy remained one of supply - including a shortage of workers. The ONS said pay across the whole economy, excluding bonuses, was 5.9% higher in the fourth quarter than a year earlier. This was the strongest reading since the three months to April 2024.
• Including bonuses, pay was up by 6.0%, its fastest since the end of 2023. However, the BoE expects pay increases to slow soon as weakness in the economy weighs on the labour market.

(Source: Reuters)