Pay, excluding bonuses, has grown by 7.8% over the last year according to the latest data from the Office for National Statistics (ONS).
Taking into account the fact inflation erodes some of this growth, in real terms the average pay has increased by 0.6%, excluding bonuses.
And whilst this will come as some relief to those household struggling to maintain their finances in the cost-of-living crisis, it has also made the chances of a base rate rise more likely.
The Bank of England’s (BoE’s) monetary policy committee (MPC) is due to meet on Thursday 21 September to decide at what level the base rate should be set.
And most experts are expecting a 0.25% rise when it happens.
Alice Haine, personal finance analyst at Bestinvest, the DIY investment platform and coaching service, explained why.
“With the momentum in wage growth still so strong, the BoE is expected to push ahead with a 25-basis point interest rate rise at its Monetary Policy Committee meeting later this month to prevent pay hikes keeping inflation high,” she said.
“Governor Andrew Bailey has repeatedly encouraged workers to ease up on aggressive pay demands, despite the pressure wrought by the cost-of-living crisis. However, with strike action still rife and 281,000 working days lost to labour disputes in July, his calls are being ignored.”
Mixed messages over whether rates will rise beyond Autumn
Yesterday, Catherine Mann, one of the members of the Bank of England’s MPC, signalled in a speech she would be in favour of increasing interest rates.
She said: “In my view, holding rates constant at the current level risks enabling further inflation persistence which will have to be unwound eventually with a worse trade-off.”
But her comments came just days after the Andrew Bailey, the BoE governor, suggested we may soon reach the peak of rate rises.
Danni Hewson, head of financial analysis at AJ Bell, predicts the committee will reach an agreement to raise rates this time but it is harder to predict further ahead.
“There’s every indication that interest rates will rise for the fifteenth time,” she said, “but then what?
“High borrowing costs and fears of an economic slowdown are impacting businesses, making them think twice about investing for the future until the present seems more stable.
“Vacancy numbers have fallen for the fourteenth time in a row and are back under the one million mark for the first time in over two years.
“It’s a milestone, but historically vacancy numbers are still high. Indeed, Wilko workers are finding themselves being wooed by numerous suitors looking for hardworking staff to join their teams.
“There may be trouble ahead – unemployment has ticked up, the number of self-employment jobs has experienced a record quarterly fall, and we’ve seen another record high in long term sickness levels.
“The labour market has been resilient but there are signs that the stress of the last couple of years has created a few cracks. The fear is that any more pressure might mean those cracks start to crumble.”
