Jump in wages puts pressure on Bank to increase rates again

The Bank of England is under renewed pressure to raise interest rates next month after wages jumped more than expected in June, boosted by a one-off payment to NHS workers.

- Phillip Inman

A rise in borrowing costs is likely even though the latest figures for the UK labour market also showed employers had begun to shed workers in response to a slowdown in economic activity.

Total pay, including bonuses, rose by 8.2% a year in the three months to June, the Office for National Statistics (ONS) reported, stronger than the 7.3% analysts had expected.

Regular pay, which excludes bonus payments, rose by 7.8% in the quarter, the highest regular annual growth rate since comparable records began in 2001, up from 7.5% in March-May.

In response to concerns that pay increases could trigger a wage-price spiral, Rishi Sunak said his "number one priority" was to bring down inflation, and claimed there was "light at the end of the tunnel" in the cost of living crisis.

The number of redundancies increased and the unemployment rate rose by 0.3 of a percentage point to 4.2% in the quarter, the ONS said.

Policymakers at the Bank of England pushed the cost of borrowing to 5.25% earlier this month, the 14th consecutive interest rate rise. The money markets indicate there is an 84% chance of the Bank raising rates a quarter of a percentage point in September to 5.5% and a 16% chance of a half-point increase to 5.75%.

Interest rates are forecast to peak at 6% in February, higher than the 5.75% expected before yesterday's labour market report was released.