UK wage growth surprises as Bank of England weighs rate decision

Average weekly earnings, excluding bonuses, held at an annual rate of 3.4%, defying economist predictions of a slide to 3.2%. While the headline figures suggest a resilient job market, the underlying components provide a more nuanced picture for the Monetary Policy Committee. Private-sector wage growth, a metric closely monitored by the Bank, actually cooled to 2.9%—the slowest pace since late 2020. The recent uptick in total pay to 4.4% was largely driven by localized factors, including significant bonuses within the financial services sector and front-loaded pay adjustments for health workers.

Despite these complexities, the data provides fuel for policymakers advocating for tighter monetary policy. Most analysts expect the Bank to maintain interest rates at 3.75%, though the surprise wage resilience may sway hawkish members of the committee. Luke Bartholomew, deputy chief economist at Aberdeen, noted that while the figures will capture the attention of those favoring higher rates, the Bank is unlikely to match the aggressive hawkish tone recently adopted by the U.S. Federal Reserve. With job vacancies sliding to 707,000—the lowest level since early 2021—the central bank faces a difficult balancing act between persistent wage-driven inflation and cooling labor demand.