RESSURE on the Bank of England to move quickly to raise borrowing costs increased today when the latest jobs figures showed that pay rises have fallen behind inflation for the first time since last summer.
While the jobs market is healthy, at 4.2% a year pay increases are lower than inflation which is at 5.1% now and set to go higher, perhaps much higher.
The spectre of rising prices could lead to a cost of living squeeze even worse than experts have so far predicted.
The latest inflation figure is reported tomorrow and could hit 5.4%. That’s ahead of looming surges in energy bills which should take inflation well past 6%.
The oil price today lept another 97 cents to $87.45, a seven-year high and a harbinger of what may be to come.
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That is already sending the cost of new mortgages higher.
Capital Economics said: “The labour market appears to have remained tight both after the end of the furlough scheme and the start of the Omicron wave, which supports our view that interest rates will be raised from 0.25% to 0.50% on 3rd February.”
Simon French at Panmure Gordon said: “With UK inflation likely to peak around 7% in Q2, and global energy prices remaining high, the Bank of England is likely to retrace the path back to pre-pandemic interest rates of 0.75%. What happens next though is far less clear with a squeeze on real incomes.”
In America, some economists now expect the Federal Reserve to put rates up four or more times this year in what senior policymakers have dubbed “lift-off”.
The ONS jobs figures today show that in December last year there were 29.5 million UK people in work, up 184,000 on November.
That is up 409,000 on the pre-pandemic level of February 2020. The UK employment rates increased by 0.2 percentage points. Unemployment is down a little at 4.1%.
TUC General Secretary Frances O’Grady said:
“While it’s good to see employment continuing to rise, on pay it’s the same story of a squeeze on workers.
“Working people deserve a decent standard of living and a wage they can raise a family on. But instead, following the worse pay squeeze for two centuries, real pay is falling, and they now face a cost-of-living crisis.”
In some sectors pay rises are still outstripping inflation as employers fight to keep valued staff.
Karen Watkins of Rowan Consulting said: “The two key challenges for many employers are a lack of skills in the market and companies making obscene counter-offers to staff who plan to leave, resulting in rising wage costs that are simply unsustainable.”
