Traders see fewer BOE interest rate cuts after stronger UK wages

In the three months leading up to October 2024, average weekly earnings in the UK, excluding bonuses, increased by 5.2% compared to the same period in the previous year. This growth exceeded the anticipated 5.0% rise and marked an acceleration from the 4.9% increase observed in the preceding three-month period.

The private sector was a significant contributor to this wage growth, with earnings rising by 5.4%, the fastest rate since May.

Despite the increase in wages, the UK labour market exhibited signs of cooling. Provisional data indicated a reduction of 35,000 in payroll employment for November, and job vacancies decreased by 31,000 to 818,000 between September and November. The unemployment rate remained steady at 4.3%, though there are concerns about the reliability of labour market surveys.

This robust wage growth has implications for the Bank of England’s monetary policy. Higher wages can contribute to inflationary pressures, potentially influencing the Bank’s decisions on interest rates. Currently, the Bank is expected to maintain interest rates at 4.75% in its upcoming meeting, with markets anticipating rate cuts next year. However, the persistent wage increases may lead to a reassessment of these expectations.