Closing summary
Labour market data released by the ONS early this morning sparked concerns on two fronts: both about the about the pace of real wage erosion taking place as a result of surging inflation, as well as the tight jobs market which has made it harder for some businesses to to hire staff.
UK unemployment held steady at 3.8%, though regular pay on a real terms basis - excluding bonuses and accounting for the CPIH measure of inflation - dropped 2.8% in the three months to May in its fastest decline since records began in 2001.
Digging deeper though, there is a growing discrepancy between public and private sector pay, up 1.5% vs 7.2%, respectively.
Some are concerned that these figures are not reflected in debates surrounding pay demands by the likes of doctors, nurses, teachers and other public sector workers, whose earnings are being eroded by the surge in inflation.
It is unclear whether the latest data will influence interest rates, but analysts are still expecting another hike by the Bank of England at their next rate-setting meeting in August.
Here are the rest of today’s main stories:
Have a good rest of the day. We’ll be back tomorrow. KM
More on what the ONS labour market data and inflation will mean for the Bank of England’s interest rate decision next month.
The EY ITEM Club’s chief economic advisor Martin Beck believes market predictions that rates will hit 2.75% by the end of the year is overblown.
He instead is forecasting that rates will top out at 2% by December:
The prospect of inflation moving higher in the autumn means that the MPC is likely to continue raising interest rates at its next few meetings.
But market pricing implying that Bank Rate will reach 2.75% by end-2022 (150bps of hikes across four meetings) looks overstated given the data continue to offer little evidence to validate the MPC’s concerns about the risk of second round effects of inflation via higher wage growth.
The EY ITEM Club expects Bank Rate to finish the year at 2%.
