Fears interest rates will go even HIGHER as figures show wages soaring

Interest rate fears were fuelled today with figures showing pay spiking at record rates – despite unemployment ticking up.

Average regular wages were 7.3 per cent higher annually in the three months to May, matching the previous three months.

That is the joint highest since records began in 2001, excluding the period when data were warped by Covid upheaval.

In the finance and business sector pay was going up by 9 per cent. The overall rate in the private sector was 7.7 per cent, while the public sector – which tends to do better in recessions but lags when the economy is recovering – saw 5.8 per cent.

Even though incomes are still not keeping pace with soaring prices, the findings immediately raised alarm that inflation has become embedded in the economy.

Markets expect the Bank of England to push up interest rates further in a desperate bid to control CPI, and lenders have already been hiking costs for borrowers.

The average two-year fix reached an eye-watering 6.66 per cent this morning, a peak since 2008 after outstripping the level during the Liz Truss meltdown last year.  

The pound rose against the US dollar on the figures this morning, as traders hardened up their view on the direction of rates. 

Average regular wages were 7.3 per cent higher annually in the three months to May, matching the previous three months

The Bank of England hiked interest rates by another 0.5 percentage points last month 

Unemployment nudged up unexpectedly in the latest quarter, as inactivity fell – although it is still above pre-Covid levels

More up-to-date figures from payrolls showed that wages were increasing at 9.7 per cent annually in June, compared to 8.4 per cent in May

Chancellor Jeremy Hunt, who delivered a stark warning over high public sector pay demands last night, said tightness in the jobs market was helping drive inflation.

‘Our jobs market is strong with unemployment low by historical standards,’ he said.

‘But we still have around one million job vacancies, pushing up inflation even further. 

‘Our labour market reforms – including expanding free childcare next year – will help to build the high wage, high growth, low inflation economy we all want to see.’

The ONS also revealed that unemployment rose unexpectedly over the quarter.

It said the UK jobless rate jumped to 4 per cent in the three months to May, from 3.8 per cent in the previous quarter. Economists had anticipated the rate holding steady.

Meanwhile, employment levels also grew as the number of people recorded as economically inactive declined, with the number of those not working due to long-term sickness dipping for the first time since last year.

Vacancies were down slightly but remain at historically high levels. 

ONS director of economic statistics Darren Morgan said: ‘Total employment grew in the latest three months while the number of people actively looking for work also increased, both driven by men rejoining the labour market.

‘Pay excluding bonuses has again risen at record levels in cash terms.

‘Due to high inflation, however, the real value of weekly earnings are still falling, although now at its slowest rate since the end of 2021.’

More up-to-date figures from payrolls showed that wages were increasing at 9.7 per cent annually in June, compared to 8.4 per cent in May.  

In a round of interviews this morning, Work and Pensions Secretary Mel Stride said the government had to take a ‘firm and robust approach to public pay settlements’.

He told LBC radio: ‘Domestic wage pressure is a key component of the stickiness of inflation, but that’s why it’s so important that the Government takes a relatively firm and robust approach to public pay settlements and there’s no way, unfortunately, that we can duck that because if those settlements are too high that will feed into those problems.

‘We’ve got to make sure that those wage pressures are moderated to the extent we can.’

Pressed on whether the Government will accept the recommendations of the pay review bodies on public sector pay, Mr Stride said ‘we have to be absolutely unwavering in our mission to get inflation down because that impoverishes us all, it’s a tax on everybody’.

Chancellor Jeremy Hunt, who delivered a stark warning over high public sector pay demands last night, said tightness in the jobs market was helping drive inflation