Positive Sign for Interest Rates
Workers may not be celebrating, but the slowing of wage growth in the UK is being seen as a positive sign that interest rates are set to fall. Recent wage figures show that average weekly earnings grew at a rate of 7.7% over the past three months, down from 7.9% the previous month. While wage growth is still relatively high, economists believe there are signs of a slowdown in the labor market. As a result, the Bank of England is not expected to raise rates further and may even start reducing them in the Spring.
Real Pay Outpaces Inflation
Economist Jake Finney notes that real pay is outstripping inflation, meaning that pay is no longer being eroded. This is seen as a positive development that could bring an end to the squeeze on living standards. Pay growth has been partly boosted by civil servants receiving a cost-of-living bonus. However, private sector wage growth has remained flat, indicating that companies are not having to offer higher salaries to recruit staff.
Addressing the Bank of England's Concerns
The cooling pay data is seen as a way to address one of the Bank of England’s biggest fears: a wage spiral that was driving inflation higher. Higher wages mean that people can afford more expensive goods, which can lead to companies increasing prices to cover the higher labor costs. The cooling pay figures suggest that this cycle may be coming to an end, which could help control inflation.
Lower Inflation Expected
Today's inflation figures are expected to show a decrease in the rate of consumer price increases, largely due to a sharp fall in energy costs. It's anticipated that the rate will fall to less than 5%. This is good news for consumers, as it means that the cost of living may become more affordable.
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