BoE under pressure as UK wages growth hits record high, unemployment up

UK wages growth in the three months to June leapt to its highest rate since records began while the unemployment rate also rose unexpectedly, according to official data released on Tuesday, putting more pressure on the beleaguered Bank of England to lift interest rates again in its fight to quell inflation.

Average weekly earnings excluding bonuses rose 7.8% in the quarter - the highest since records began in 2001 - the Office for National Statistics said. Total earnings rose 8.2%, higher than forecasts of 7.3%, boosted by one-off bonus payments made to National Health Service staff in June.

Meanwhile, the unemployment rate increased to 4.2% from 4%, its highest since October 2021. The number of employed people declined by 66,000 between April and June, while vacancies were also down. Between May and July, the number of vacancies fell by 66,000 on the quarter to 1.02m.

UK unemployment rose to 4.2% in June, ahead of expectations, while soaring wages mean more interest rate pain could be on the way.

Analysts had expected the rate of unemployment to remain at 4%, but the rise suggests that the latest cycle of interest rate hikes was starting to impact on hiring and staffing decisions by employers.

"There was always the likelihood that today’s unemployment and wages numbers would give the Bank of England a headache when it comes to deciding what to do when it comes to further rate increases, and this morning’s numbers have not just given the central bank a headache, but a migraine," said Michael Hewson, chief market analyst at CMC Markets.

"While many people will decry the strength of these numbers and warn of the risk of wage/price spiral they rather miss the point that consumer incomes have been squeezed for months, with the gap finally narrowing, and now starting to work in consumer’s favour."

"This trend is likely to continue in the coming months as wage growth starts to slow and falling CPI starts to find a base, offering consumers some relief from the squeeze of the last 18 months."

Reporting by Frank Prenesti for Sharecast.com