Business lobby groups are urging the Bank of England to stop raising interest rates due to concerns about the negative impact on their members. This comes after the latest jobs figures revealed that pay rises, including bonuses, have reached 8.5% per year. Despite 14 consecutive interest rate rises by the Bank of England, salaries have continued to rise in response to inflation. The pressure is now on the Bank’s monetary policy committee to decide whether to act again or risk further pay increases leading to higher inflation next year.
Some Bank officials, including Governor Andrew Bailey, who have signaled the end of the hiking cycle, may have hoped that pay would decrease to show that previous measures have been effective. However, the measure of pay that excludes bonuses remained at 7.8% in the three months from May to July. The Institute of Directors is calling for a break from further interest rate rises.
Kitty Ussher, the chief economist at the Institute of Directors, stated that wage inflation “still feels high” but there are special factors that have prevented it from falling in line with recent declines in inflation. She highlighted the spike in public sector deals, which have pushed pay, including bonuses, across Whitehall, the NHS, and other public services to a record high of 12.2%. Ussher emphasized the need to focus on regular pay in the public sector, which is much lower at 6.6% and below the July inflation rate of 6.8%. She also noted that private sector pay wage pressure, although high, has been growing at a slower rate in recent months and is likely to decrease further as the labor market loosens and the headline inflation rate decreases.
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Surveys conducted by the Institute of Directors show that the Bank’s half-a-point interest rate rise in June has worsened business leaders’ outlook for the economy. Yael Selfin, the chief economist at KPMG, stated that the labor market is showing clear signs of weakening as the economy slows in response to interest rate rises. She believes that a quarter-point increase next week is inevitable based on the pay figures, but argues that there is little support for further rises.
Selfin highlighted how the unemployment rate has risen to 4.3%, vacancies are below 1 million, and job-to-job flows have moderated, indicating that workers are less confident about changing employers. Businesses are concerned that when the downturn comes, which the Bank wants to slow rising wages and inflation, it will result in an unstoppable recession. This is a hard landing that has been avoided so far in the US but appears to be heading for the UK.
2023-09-12 03:28:31
Original from www.theguardian.com
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