Bank of England Welcomes Lower Wage Growth Amid Economic Uncertainty

  • U.K. wage growth cooled in the three months to June, providing relief for the Bank of England.
  • The headline measure of average earnings, excluding bonuses, increased by 5.4% year-on-year in Q2, down from 5.8% in Q1.
  • Including bonuses, pay growth fell to 4.5% from 5.7%.
  • The unemployment rate unexpectedly dropped to 4.2% in Q2 from 4.4% in the previous three months.
  • Bank of England cut its key interest rate for the first time in over four years this month.

The U.K.’s wage growth has eased in the three months to June, offering relief for the Bank of England which recently cut its key interest rate for the first time in over four years. The headline measure of average earnings, excluding bonuses, increased by 5.4% year-on-year between April and June, down from 5.8% in the three months to May. This marks the lowest rate since July 2022 and contrasts with economists’ expectations of a 5.3% increase. When including bonuses, pay growth fell even more – to 4.5% from 5.7%. The Office for National Statistics (ONS) noted that a one-off bonus for national health workers last year may have affected the comparison. Monica George Michail, associate economist at the National Institute of Economic and Social Research, predicts wage pressures will gradually decrease as the labor market cools with unemployment rising relative to vacancies. However, the unemployment rate unexpectedly dropped to 4.2% in Q2 from 4.4% in the previous three months. The Bank of England (BOE) cut its key policy rate to 5% this month and expects unemployment to rise towards 2025 while GDP will increase by 1.25% over 2024 before easing to around 1% next year. Despite the relief, one policymaker who voted against the rate cut, Catherine Mann, warned that it could take a long time for wages to catch up with desired real wages, potentially leading to higher wage growth than expected.

Factuality Level: 8
Factuality Justification: The article provides accurate information about the U.K.’s wage growth, cites relevant sources such as the Office for National Statistics and the Bank of England’s report, and includes expert opinions from economists. It also discusses related events in other countries like the U.S. However, it could be improved by providing more context on the Bank of England’s decision-making process and including data on inflation and economic growth.
Noise Level: 7
Noise Justification: The article provides relevant information about the UK’s wage growth and its impact on the Bank of England’s decision-making process, but it could benefit from more in-depth analysis and context. It also includes some extrapolated data that should be treated with caution, which may lead to confusion for readers.
Public Companies: Bank of England (N/A), Office for National Statistics (N/A), National Institute of Economic and Social Research (N/A), Financial Times (N/A), The Wall Street Journal (N/A)
Key People: Andrew Bailey (Governor of the Bank of England), Monica George Michail (Associate Economist at the National Institute of Economic and Social Research), Catherine Mann (Policymaker)

Financial Relevance: Yes
Financial Markets Impacted: Bank of England’s key interest rate cut, wage growth, unemployment rate, and inflation data
Financial Rating Justification: The article discusses the Bank of England cutting its key interest rate, wage growth in the UK, and the impact on financial markets. It also mentions the unemployment rate and inflation data, which can affect financial markets and companies.
Presence Of Extreme Event: No
Nature Of Extreme Event: Other
Impact Rating Of The Extreme Event: Minor
Extreme Rating Justification: There is no extreme event mentioned in the text. The article discusses U.K. wage growth and Bank of England’s interest rate decision, but no major crisis or disaster occurs.
Move Size: No market move size mentioned.
Sector: All
Direction: Up
Magnitude: Small
Affected Instruments: Stocks

Reported publicly: www.wsj.com