Lack of "unpleasant surprises" in UK wage data takes pressure off BoE

(Alliance News) - Tuesday's wage inflation print from the UK shows the pace of pay increases seems to be on a downward trend, which analysts believe will reinforce the likelihood that the Bank of England has concluded its rate hiking cycle.

According to the Office for National Statistics, in the three months to August, annual growth in average total pay, excluding bonuses, was 7.8%.

This was in line with market consensus, as cited by FXStreet. The figure for the previous three-month period was revised upwards to 7.9% from 7.8%.

Including bonuses, average pay growth cooled to 8.1%, which undershot market expectations of 8.3%. It was 8.5% in the three months to July. The data including bonuses were affected by the one-off payments made in June through August to NHS and civil service staff, the ONS noted.

The UK unemployment data is delayed until next week.

"Those numbers, when we get them, will still have some bearing on the [BoE]'s next decision, but committee members have made it abundantly clear that private-sector regular pay growth is the key metric it's watching," Dutch bank ING said.

Annually, private sector wage growth is down to 8.0%, compared to 8.4% at the peak during the Coronavirus period of April to June 2021 .

"That's still too high for the Bank's liking, but the lack of fresh unpleasant surprises reduces pressure to hike again in November," ING added.

The BoE maintained bank rate at 5.25%, a more than 15-year high, in what was something of a surprise move in September. Its Monetary Policy Committee will next meet to decide rates in a little over two weeks on November 2.

According to Trading Economics, the market predicts the BoE has ended this monetary tightening cycle, though rates are expected to remain at their current elevated level at least through to the third quarter of 2024.

"Despite the current pause in rate rises, businesses will still be finding the going very tough," said Richard Carter, head of fixed interest research at Quilter Cheviot.

"As a result of higher interest rates it may lead to a plateauing of wage growth, given that businesses will not have the surplus funds to sanction significant salary increases."

Carter noted that employees might "tread cautiously" when asking for pay rises, over concerns of becoming "too expensive to keep on". In a similar vein, businesses may choose to "stay lean" and not hire more staff, given the future economic uncertainty.

"Therefore, despite the positive momentum in wages over the past year, a deceleration seems likely in the near future," Carter predicted.

By Elizabeth Winter, Alliance News senior markets reporter

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