Pbritish art Getting hotter. On June 13, the Met Office, the weather watchdog, issued a warning that large swathes of the country were officially in a heatwave. The data released by the National Bureau of Statistics on the same day (Office for National Statistics), the custodian of other kinds of official data, shows that the labor market is also sweltering: Private sector wages, excluding bonuses, are 7.6% higher than a year ago. That was the fastest rate of growth in two decades — just below April’s 7.8 percent headline inflation rate, which includes housing costs.
Economists had expected wage growth to pick up after the main minimum wage rose 9.7 percent to £10.42 an hour from £9.50 ($12) in early April. However, the raises are mostly concentrated in high-paying sectors. Revenues in financial and business services rose 9.2 percent compared to last year, while median revenues in hospitality or retail rose just 5.1 percent.this Office for National Statistics Estimates for wage growth have been raised for all three months.
This is despite the Bank of England’s efforts to cool the labor market. Companies’ need for workers, as measured by job openings, has shrunk. But the economy still added 250,000 jobs, and total hours worked finally surpassed pre-pandemic levels. Labor supply is gradually recovering. At the same time, the number of people who are physically inactive due to long-term illness has reached a record high. After the data, central bank governor Andrew Bailey told the House of Lords that the recovery in economic activity had been “frankly very slow”.
As a result, traders expect the bank to do more to curb demand. The government’s two-year borrowing costs hit 4.9%, above the peak after the disastrous mini-budget in September 2022. This has a ripple effect on homeowners, increasing the cost for anyone to renew or start a mortgage. The cost of a fixed five-year mortgage has risen to 5.5% a year from 5% in early May, data provider Moneyfacts said. Things are different this time. Unlike after the mini-budget, when traders fled the pound slumped and the currency strengthened against the dollar, which should help bring inflation down. Rather than worrying about the soundness of the country’s economic policy, traders see more stubborn inflation and further rises in interest rates. .
That can cause problems. The Office for Budget Responsibility, the fiscal watchdog, says that every percentage point rise in interest rates reduces the amount the Treasury has to spend by £20bn a year. Borrowing costs have risen that much in the decade since Chancellor Jeremy Hunt delivered his budget in March. He has little chance of cutting taxes before elections due next year.
The faster-than-expected growth may partly explain stubborn inflation. It may also be that the bank’s previous interest rate hikes have not been as effective as expected. New mortgages can be much more expensive, but fewer have mortgages: around 30% of homes will have mortgages by 2022, up from 56% in 1993, according to the UK Housing Survey. Many more of these mortgages are fixed for several years, as well. The central bank estimates that real interest rates on mortgages have increased by only 0.7 percentage points despite the central bank raising interest rates by 4.4 percentage points since December 2021. It said higher mortgage costs compressed household consumption overall by just 0.3 per cent.
This makes the central bank’s job much more difficult. The impact of previous rate hikes will be felt more strongly in the coming months as more fixed-rate mortgages are terminated. If the bank raises rates again, it could slow the economy more than expected. Then again, if it’s delayed then higher inflation could become more entrenched. The Met Office has warned that thunderstorms and flooding are likely to follow the heatwave. Britons should hope the job market still avoids a similar fate.■
