UK Wage Growth and Jobless Rate Rise, Fueling BoE Rate Path Uncertainty

Data from the Office for National Statistics highlighted several key trends:

The number of payrolled UK employees declined by 9,000 over the quarter. However, payrolled employees increased by 182,000 compared to September 2023.
Job vacancies declined by 35,000 from August 2024 to October 2024, marking the 28th consecutive period of falling vacancies.
Claimant counts increased by 26,700 in October after rising by a downwardly revised 10,100 in September.

Higher Wages Align with BoE’s Inflation Outlook

September’s upswing in average earnings (including bonus) aligned with the BoE’s expectation of persistent inflationary pressures. On November 7, the BoE voted 8-1 in favor of cutting interest rates by 25 bps to 4.75%.

However, the BoE projected inflation to reach 2.75% in 2025, well above its 2% target, which may lead to a more cautious approach regarding further rate cuts. The BoE attributed the higher inflation forecast to the Government budget, which may drive near-term growth and inflation.

Higher wages may boost disposable income, potentially fueling consumer spending and demand-driven inflation, further complicating BoE plans for monetary policy normalization.

Although softer labor market conditions typically curb wage growth and inflation, the 4.3% unemployment rate remains relatively low. Current unemployment levels may continue to support private consumption and sustain inflationary pressures.