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(Bloomberg) -- UK wage growth accelerated for the first time in more than a year, prompting traders to scale back bets on Bank of England interest-rate cuts.
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The pickup in pay growth excluding bonuses to 5.2% in the three months through October came on the back of a surge in private-sector wages, the Office for National Statistics said on Tuesday. It was the first acceleration since August 2023 and well above the 5% economists were expecting.
Money markets unwound bets on rate cuts after the shock figures. The implied chance of three quarter-point cuts in 2025 fell to around 55%, down from 90% before the report. The pound erased a small loss to trade 0.2% stronger at $1.2707.
Private-sector regular pay growth, the gauge most closely watched by the BOE, jumped much faster than expected to 5.4% from 4.9%. The central bank was forecasting an increase to 5.1% for the three months to December. There were large pay rises in the construction and finance and business services sectors.
Inflation-busting public-sector pay awards announced by the new Labour government after winning the July general election are expected to begin feeding into the official figures from next month, the ONS said. In October, public-sector pay growth slowed to 4.3% from 4.7%.
The surprise earnings data comes just ahead of Thursday’s rate decision by the Monetary Policy Committee. It is widely expected to keep policy on hold at 4.75%, a position reinforced by the pay data as officials continue to worry about lingering pressures in the labor market.
What Bloomberg Economics Says...
“The larger-than-expected rise in October’s annual private sector pay supports the current consensus at the Bank of England that interest rates should only fall gradually. Our base case remains the central bank will keep easing in quarterly steps – we expect rates to stay unchanged at the December meeting and to fall by 100 basis points by end-2025.
—Ana Andrade and Dan Hanson
Inflation figures on Wednesday are expected to reinforce the BOE’s concerns, with consumer-price growth forecast to rise to 2.6% in November from 2.3%. Services inflation, a key gauge of underlying pressures, is forecast to remain stubbornly high above 5%.
“The jump in wage growth excluding bonuses to 5.2% puts another nail in the coffin of an interest rate cut on Thursday,” said Thomas Pugh, economist at RSM UK.
“Our base case is that the MPC will cut rates once a quarter next year, but strong wage growth and a second Trump presidency increases the risk of fewer rate cuts.”