UK wage growth giving Bank an extra headache

THE dilemma facing Bank of England rate setters deepened today as official data revealed wages rose father than expected at the end of last year.

- Jonathan Prynn

Two days ahead of a likely confirmation that the UK economy slipped into recession in the second half of 2023, latest figures from the Office for National Statistics (ONS) showed regular pay went up by an average of 6.2% in the three months to December.

That was faster than the 6% expected by City economists and represents an uncomfortably high number for the Bank's Monetary Policy Committee (MPC) as it contemplates the timing for a first cut in interest rates, expected in May or June.

The MPC is thought unlikely to want to sanction a reduction in the cost of money while wages are rising so much faster than inflation, stoking up demand in the economy. Real regular wages rose by 1.9% - the highest since summer 2019, excluding the pandemic years.

Danni Hewson, head of financial analysis at brokers AJ Bell, said pay growth was still "uncomfortably high".