Photograph: Daniel Leal-Olivas/AFP/Getty Images
UK government borrowing costs have risen above levels hit during the disastrous premiership of Liz Truss, as stronger-than-expected jobs and payments data reinvigorated expectations that the Bank of England will raise interest rates next week.
Bank governor Andrew Bailey said inflation is “taking a lot longer than expected” to come down, telling the economic affairs committee of the House of Lords: “As I’m afraid this morning’s numbers illustrated, we need a lot Got tight labor market.
“We still think that inflation is going to come down, but it’s taking a lot longer than we expected.”
Following the wages data release, the two-year gilt yield – the interest rate on UK government borrowing – rose more than 0.2 percentage points to nearly 4.9%, surpassing the level following Trus’ ill-fated mini-budget in September. , Yields are also the highest since the 2008 financial crisis, raising the cost of government borrowing.
It comes after data from the Office for National Statistics showed growth in average regular pay, excluding bonuses, strengthened by 7.2% in the three months to April – the highest level on record, barring the Covid pandemic.
Driven by bumper pay increases in the City of London for staff in finance and business services, the latest snapshot showed total pay, including bonuses, also increased by 6.5% over the same period.
At those rates, wage growth still lags inflation – currently at 8.7% – meaning wages are falling in real terms, putting more pressure on household finances.
Financial markets are betting on resilience in the jobs market to prevent persistently high levels of inflation, amid signs that companies will continue to raise wages to meet a severe shortfall in available workers. The bank is widely expected to raise rates by at least a quarter point from the current level of 4.5% at the next meeting of its Monetary Policy Committee on June 22.
Further increases in borrowing costs will put pressure on households, with Resolution Foundation figures showing that around 1.6 million mortgage holders will be on the receiving end of cheap fixed-rate deals expiring this year, adding up to almost a typical borrower’s annual income. add £2,300. repayment.
Shadow Chief Secretary to the Treasury Pat McFadden said: “The pressure is greater in the UK than in other countries because, in this country, the Conservative government picked the worst possible moment last year to use the country for a huge economic experiment , which keep booster rockets under mortgage rates.
Megan Green, who was appointed in April to join the MPC from next month, told MPs on the Commons Treasury Committee on Tuesday that Threadneedle Street may have a tough time getting inflation back to its 2% target. Is.
Stating that headline inflation should come down “quite quickly” this year amid a stabilization in energy bills, the US economist said there was “some underlying persistence” in inflation. “Getting 10% to 5% – and this probably goes for every major jurisdiction – is probably easier than getting 5% to 2%.”
Economists said the large increase in April wage increases could partly be a response to a 9.7% increase in the “national living wage” at the start of the month to lower-wage employers, but said the rise in overall average wages was mainly due to Driven at high speed. payment fields.
In a sign of continued strength in the British jobs market, the unemployment rate unexpectedly fell to 3.8% in the three months to April as companies continued to hire despite mounting financial pressure from rising borrowing costs and weak consumer demand .
Employment increased by 250,000 in the three months to April, marking the first time the number of people in work rose above pre-pandemic levels and set a new record of more than 33 million.
However, long-term illness among working-age adults outside the job market continued to rise, reaching a new record level.
The number of job vacancies fell for an 11th consecutive period, falling from 79,000 in the quarter to just over 1m, given growing economic uncertainty in some industries.
Average regular wage growth in the private sector accelerated to 7.6%, the biggest growth rate seen outside the pandemic period, when figures were distorted by furlough pay support and employment shifts. Public sector wage growth was 5.6%, the highest since 2003.
Jeremy Hunt, the Chancellor, said: “The number of people in work has reached a record high, and the IMF and OECD have given credit to our major reforms in the recent Budget, which are getting more people into work, propelling the economy forward. will help even more.
“But rising prices are eating into people’s pay checks – so we must stick to our plan to halve inflation this year to boost living standards.”
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