Economic Briefing Report: Wage growth strengthens
Inflation is stubbornly high in the UK, remaining unchanged at 8.7%, once more a slower pace of disinflation than the Bank of England had originally estimated. This prompted a strong interest rate rise by the Monetary Policy Committee, and the Bank Rate now stands at 5%.
Retail performance has held up beyond expectations over H1 2023, with sales volumes even managing to see growth in some months, despite the difficult inflationary backdrop. Services inflation is now ramping up and will become a bigger focus in the Consumer Price Index (CPI) figures, as food and energy inflation start to ease. However, higher wage settlements are resulting in input costs remaining elevated, which will imply slower disinflation.
Stubborn inflation hits consumer spending across most channels, whether grocery, utility or housing. Sustained wage pressures, moreover, will offer some reprieve to working households, and buoy demand within the economy. We expect growth to broadly remain flat over the coming year, and this stagnation is likely to continue into 2024. Inflationary pressures continue to become embedded in the economy and the latest re-acceleration in wage growth suggests that there is a higher risk of further tightening in monetary policy.Harvir Dhillon, Economist at the British Retail Consortium