Britain got another sign on Tuesday that inflation may be living with pain. The country braced for higher interest rates once again, as bond yields climbed above levels last year when Liz Truss was prime minister.
The data showed that wage growth was a closely watched indicator for how deeply inflation is embedding in an economy. Rising at fastest pace in at least two decades in UK,
regular salaryBritain’s Office for National Statistics said on Tuesday that, not including bonuses, increased 7.2 percent from February to April. This is the most since current records began, except during the pandemic, when furloughs distorted labor market data.
The agency also reported other signs that the labor market was strong, including an increase in employment, more people looking for jobs and a decline in the unemployment rate. While these indicators are generally desirable for the standard of living of the people, they now suggest rising inflationary pressures.
Traders responded to the data by betting that the Bank of England would raise interest rates even higher.
According to HSBC economists, the labor market data was “almost blatantly aggressive”, meaning the numbers support tighter monetary policy. HSBC economists said they expect the central bank to raise rates by a quarter point at its meeting next week, with many policymakers voting for a bigger hike.
For a year and a half, interest rates in the UK have been on the rise as the country battles its worst bout of inflation in more than four decades. The Bank of England has raised rates from near zero to 4.5 per cent in late 2021. While inflation peaked at the end of last year in Britain, and fell to 8.7 percent in April, it has eased in the United States and much of Europe. ,
Traders are betting that the Federal Reserve could halt its interest rate hike this week, but the Bank of England may not be able to follow suit – despite laying the groundwork for a possible pause months ago – because data Inflation points to a more stable than expected trend. ,
Now, traders are betting that British policymakers will continue to raise rates during the summer and keep them high during the fall, reaching 5.7 percent early next year.
The yield on British government bonds is higher than when Ms Truss was prime minister last September and October. His tax-cut, free-markets agenda roiled the markets and caused bond yields to rise, roiling the mortgage market and pension industry. The yield on two-year bonds affected by central bank rate changes rose 0.2 percent to 4.8 percent on Tuesday morning, the highest since 2008.
During Ms Truss’s premiership, this raised concerns about Britain’s financial responsibility. Now they point to concerns that inflation will be stubborn and that the central bank will have to raise rates and keep them longer than before.
Rekindling expectations of higher rates Turmoil in the home loan market As some lenders have pulled offers for new mortgage deals.
Jonathan Haskell, Member of the Rate Setting Committee of the Bank of England, wrote in a newspaper column on Monday that “further hike in interest rates cannot be ruled out.”
“The more difficult our current conditions are, the worse the underlying inflation will be,” he added.
Late last month, economists at Goldman Sachs said they expected the Bank of England to raise rates to 5.25 percent, the highest since February 2008.
Goldman analyst Ibrahim Qadri wrote in a note Tuesday that he worries that wage growth in Britain will stagnate at a level that would be inconsistent with the central bank meeting its target of 2 percent inflation.
While the rapid pace of wage growth may unnerve central bank policymakers, it will bring limited comfort to many UK workers as it continues to lag behind inflation. Most people are experiencing a real pay cut as the cost of food and services has risen at the fastest rate in decades.
“Rising prices are eating away at people’s pay cheques,” Chancellor of the Exchequer Jeremy Hunt said in a statement on Tuesday. “So we must stick to our plan to halve inflation this year to boost living standards.”