United Kingdom interest rate hike looms as wages rise faster than inflation

Ann Santiago
April 19, 2018

The Office for National Statistics (ONS) says wages rose by 2.8% in February, while inflation was 2.7%.

Average wages excluding bonuses were up by 2.8% in the three months to the end of February, growing at a faster rate than CPI inflation for the first time in a year.

Consumer price inflation was 2.9 percent over the period.

The rural month to month inflation rate registers -2.1 percent. Earlier, the pound touched its highest level against the dollar since the United Kingdom voted to leave the European Union.

Tuesday's better news on incomes - month-on-month wages are now rising faster than prices - does not mean the good times are suddenly back.

Sterling fell 0.5 per against the dollar to 1.42 following the news.

British government bond prices surged after the data, pushing two-year yields GB2YT=RR down 6 basis points on the day to a two-week low of 0.830 percent, while 10-year yields GB10YT=RR dropped by 5 basis points to 1.387 percent.

Job vacancies remained unchanged at 815,000, while the number of self-employed workers fell for the second successive quarter - down by 18,000 to 4.76 million.

"Inflation looks to be falling back as predicted, but with wages picking up and unemployment still falling, it's possible this tightness in the labour market could eventually push inflation back up".

The slowdown in consumer price inflation was largely caused by clothing, tobacco and alcohol prices, ONS said, as all three increased more slowly in March than they did a year ago.

In response Peter Dowd, Labour’s shadow chief secretary to the Treasury,  said the figures are still higher than the Bank of England’s target.

United Kingdom manufacturers increased the prices they charged by 2.4% compared with 2.6% in February, slightly stronger than the consensus forecast of 2.3% but still marking the weakest rate of increase since November 2016.

Though Mr Brettell said it remains more likely than not that interest rates will go up next month.

The Bank of England will raise its key interest rate to 0.75 percent in May, said almost all of 76 economists polled by Reuters, with another 25 basis point rise expected just before Britain is due to leave the European Union early next year.

Food prices rose 0.3 per cent compared with a month earlier, versus a 0.6 per cent rise over the same period in 2017, with fruit and fish applying the most downward pressure, having fallen 1.4 per cent and 1.3 per cent respectively.

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