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UK Wage and Inflation Data to Determine Bank of England Interest Rate Hikes

Strategic Insights

— 2 min read

The UK economy will be closely monitored this week as the Office for National Statistics releases key indicators, including wages and prices data, which will significantly impact the Bank of England's decision on interest rate hikes. With interest rates potentially reaching their peak in the coming months, the data will be crucial in determining the number of further rate hikes needed to control inflation. Economists are watching services inflation and wage growth, as the UK's jobs market cools, and the risk of a tick-up in the unemployment rate is possible.

Key Takeaways:

  • The Bank of England's chief economist, Huw Pill, has stated that the Monetary Policy Committee's (MPC) tightening efforts over the past 18 months "are working," but the MPC's governor, Andrew Bailey, noted that there are "multiple paths" interest rates could take in coming meetings.
  • UK labour market indicators, including wages, are out on Tuesday, and the Office for National Statistics will follow this up on Wednesday with its "prices day", before releasing retail sales data on Friday.
  • Economists predict private sector wage growth will remain at 7.7%, and while the downtrend will be slow, it will eventually lead to weakening wage pressures.
  • Ruth Gregory at Capital Economics expects a sharp fall in the UK consumer prices index (CPI) from 7.5% to about 6.5% due to a near 20% fall in the energy price cap in July.
  • The MPC will need to see services CPI print in line with forecasts or lower for at least two consecutive reports to be reassured into pausing rate hikes.

Statistics:

  • Private sector wage growth: 7.7% (measured as the last three month's average compared to the same period last year)
  • Expected fall in CPI inflation: from 7.5% to approximately 6.5%
  • Forecasted services CPI: 7.3% in July, edging down to 7.2% in August, and falling to 7% in September
  • Forecasts headline CPI: 6.8%
  • Forecasted unemployment rate: potential tick-up

Sources:

  • "UK wage and inflation data will be the big domestic economic stories of the coming week, potentially putting a bead on when the Bank of England could pause interest rates hikes." - [Press Trust of India](https://www.newsneonline.com/uk-wage-and-inflation-data-to-determine-bank-of-england-interest-rate-hikes/)
  • James Smith at ING: "and not a whole lot else," said economist James Smith at ING.
  • Huw Pill, Bank of England chief economist: "is working," while his boss, governor Andrew Bailey, noted that there were "multiple paths" interest rates could take in coming meetings - signalling that a September hike was not necessarily set in stone.
  • Ruth Gregory at Capital Economics: "the UK consumer prices index (CPI) is still more than twice the US rate but while it has started to fall, is not likely to follow drop as quickly."
  • Sanjay Raja at Deutsche Bank: "If inflation tracks in line (or comes in better than expected), this would be enough for the MPC to gain some confidence that its monetary policy medicine is working."

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