Strong UK pay growth boosts chance of BoE rate rise

British wages rose faster than anticipated last month, in a move that economists judge may tip the Bank of England towards a further rise in interest rates next month, despite an unexpected increase in joblessness too.

The Office for National Statistics said the unemployment rate edged up to 3.8% – its highest since the second quarter of 2022 – rather than holding at 3.7%, as forecast by economists in a Reuters poll.

Annual pay growth for the three months to January was revised up to 5.9% and held at that level for the three months to February – above all forecasts in the Reuters poll, which had pointed to a drop to 5.1%. Excluding bonuses, wage growth held at 6.6%.

Sterling strengthened and government bond yields rose to a one-month high after the data, as financial markets saw a more than 80% chance of the BoE raising interest rates to 4.5% in May to help bring down inflation, which was above 10% in February.

“For those of us expecting the Bank of England to keep interest rates unchanged next month, the latest surprise pick-up in UK wage growth undoubtedly puts a spanner in the works,” said James Smith, economist at ING.

This report’s information was first seen on REUTERS; to read more, click this link.