Governor of the Bank of England Andrew Bailey is one of the decision markets on the policy committee (Frank Augstein/PA)
(Picture: PA Wire)THE UK jobs market remains strong but pay is falling at the fastest rate for 20 years official figures today suggest, putting intense pressure on the Bank of England as it ponders the next rise in interest rates due on Thursday.
GDP numbers yesterday suggested the economy is heading for recession and today there was “grim news” on pay, giving the Bank a serious dilemma.
With inflation spiralling, some say out of control, central banks are ratcheting up borrowing costs.
The Federal Reserve may even raise US rates by 0.75 percentage points tomorrow to control inflation shocks.
The Bank of England is expected to do a smaller 0.25 point rate rise this week, taking base rates to 1.25%, but there is growing talk in the City that it might decide a 0.5 point rise is needed.
While that might help on inflation, it will surely exacerbate a cruel cost of living crisis, experts warn.
It might also further call into question the credibility of governor Andrew Bailey for those who think he and his colleagues should have put rates up sooner.
Today the ONS said unemployment is at a low 3.8% for the February to April period. There are 1.3 million job vacancies, a record.
But pay is down 2.2% on a year ago when adjusted for inflation. Tony Wilson, director of the Institute for Employment Studies, says this is “grim news” on pay that is only likely to get worse.
He said: “Despite the tightest labour market on record, nominal pay is broadly flat meaning that rocketing inflation is leading to the largest cuts in real pay in at least two decades. The picture is particularly bad for public sector workers, with real pay falling by nearly 6% year on year.”
Yesterday it emerged that GDP fell 0.3% in April, far worse than expected, leading some to conclude the UK is already in recession. The services, production and construction sectors all shrunk.
Stephen Evans, Chief Executive of the Learning and Work Institute, says: “The cost of living crisis is hitting hard with real regular wages falling more sharply this month than in any month this century. We face a year of pain.”
In the City, the firm view is that the Bank needs to leave supporting struggling families to the government and move rates up quickly.
Laith Khalaf, head of investment analysis at AJ Bell, said: “The Bank of England has to prove it’s serious about controlling inflation to maintain credibility, even though it’s raising rates into a slowing economy. The result is a nightmare for consumers, who will face higher mortgage bills on top of rising fuel and energy bills. The cost of living package provided by the government will help, but ironically it might spur the central bank to raise rates more aggressively.”
