UK Wage Growth Accelerates to 6.9% to Pressure the Bank of England

Bob Mason
Updated: Jul 11, 2023, 06:24 GMT+00:00

UK wage growth accelerated in May, putting the BoE under increasing pressure to push interest rates beyond 6%. despite an increase in unemployment.

UK Labour Market Overview - FX Empire


  • Bank of England Governor talked of a resilient UK labour market and wage growth fueling inflationary pressures.
  • This morning, the UK Labour Market Overview supported more hawkish Bank of England monetary policy bets.
  • While the UK unemployment rate rose to 4.0%, average earnings, including bonuses, supported rates to nudge beyond 6%.

It was a busy morning on the UK economic calendar. The UK Labour Market Overview Report garnered interest today, with UK wage growth a focal point.

The UK unemployment rate unexpectedly rose from 3.8% to 4.0% in May. However, UK average earnings, including bonuses, increased by 6.9% year-over-year versus 6.7% in April. Economists forecast average earnings, including bonuses, to rise by 6.8% in May versus 6.5% in April and for the unemployment rate to hold steady at 3.8%.

According to the Office for National Statistics,

  • From April to June, the estimated number of vacancies fell by 85,000 to 1,034,000, marking a twelfth consecutive quarterly decline.
  • Significantly, growth in regular pay (excluding bonuses) increased by 7.3% from March to May 2023, equaling the highest growth rate.
  • The employment rate was up quarter-on-quarter and year-over-year but remained below pre-pandemic levels.

Employment increased by 102k in the three months to May versus 250k in the three months to April.

The acceleration in wage growth will likely force the Bank of England to keep its foot on the gas to tame inflation. Significantly, the latest report supported bets on a Bank Rate peaking beyond 6%.

Bank of England Governor Highlights Wage Growth Bugbear

Bank of England Governor Andrew Bailey set the scene on Monday, speaking at the Financial and Professional Services Dinner. The BoE Governor vowed to see the job through on taming inflation, saying,

“It is crucial that we see the job through, meet our mandate to return inflation to its 2% target, and provide the environment of price stability in which the UK economy can thrive.”

Bailey added,

“Both price and wage increases at current rates are not consistent with the inflation target. Currently, at 8.7% in the latest data, consumer price inflation is unacceptably high, and we must bring it down to the 2% target.”

GBP to USD Reaction to UK Labour Market Overview

Ahead of the UK Labour Market Overview Report, the GBP to USD fell to a pre-stat low of $1.28571 before rising to a high of $1.28872.

However, in response to the Labour Market Report, the GBP to USD rose from $1.28693 to a post-report high of $1.28988.

At the time of writing, the GBP to USD was up 0.28% to $1.28972.

UK Wage Growth delivers a GBP to USD rally - FX Empire
110723 GBPUSD Hourly Chart

Next Up

It is a quiet day on the US economic calendar, with no US economic indicators to provide direction. The quiet economic calendar will leave FOMC member commentary in focus, with FOMC member Bullard speaking today.

FOMC members Barr, Bostic, and Daly weighed on the dollar, announcing the Fed monetary policy tightening cycle is nearing its end.

FOMC Member Mary Daly reportedly favored two further rate hikes this year but added,

“While the risks of doing too little are still greater than those of overdoing it on rate hikes, the two sides are getting into better balance as the Fed nears the last part of its hiking cycle.”

FOMC member Michael Barr noted the Fed is close, with Raphael Bostic erring on the side of patience.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike was 92.4% versus 93.0% on Friday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 23.1%, down from 24.2% on Friday.

About the Author

Bob Masonauthor

With over 20 years of experience in the finance industry, Bob has been managing regional teams across Europe and Asia and focusing on analytics across both corporate and financial institutions. Currently he is covering developments relating to the financial markets, including currencies, commodities, alternative asset classes, and global equities.

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