Inf lation dips... and we all get a pay rise
FALLING inflation means workers are enjoying the strongest real-terms wage growth for two years, official figures have shown.
The 1 per cent rise is the best since the three months to September 2021.
The headline rate of pay growth is slowing – but this is in fact a double boost because it could give the Bank of England more leeway to cut interest rates by the middle of next year.
It came as separate data showed further signs of the pain being caused by rate rises, revealing a surge in the number of businesses going bust.
Figures out today that are expected to show inflation plunging below 5 per cent could add to the ammunition of those gunning for a rate cut.
Chancellor Jeremy Hunt said: ‘It’s heartening to see inflation
‘Gunning for a cut in rates’
falling and real wages growing, keeping more money in people’s pockets.’ He added that he would set out plans to get more people back into work and ‘deliver growth for the UK’ in his Autumn Statement next week.
The latest Office for National Statistics figures showed wages rose by 7.7 per cent in the three months to September compared to the same period a month earlier. That was a slowdown from the record growth of 7.9 per cent seen in the three months to August.
Falling inflation means those pay increases are delivering more spending power to households. Stripping out inflation, wages grew by 1 per cent.
Strong headline wage growth has been a worry for the Bank of England because of the fear it could stoke further inflation.
But the signs that the pay data is easing, along with job vacancies, which have been falling for 16 months, could mean the labour market is getting back to normal after the pandemic.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said slowing pay growth should pave the way for the Bank of England’s Monetary Policy Committee to start reducing interest rates as early as May and take them down from 5.25 per cent to 4.5 per cent over the course of 2024. Traders have been betting that the Bank will cut rates next June.
Official figures showed business insolvencies rising by 18 per cent to 2,315 last month – an unwelcome sign that firms are struggling but one that will add to calls for an early interest rate cut. Figures out today are expected to show inflation fell sharply to 4.8 per cent in October from 6.7 per cent in September.
That would mark its lowest rate since October 2021, and it would mean Rishi Sunak has achieved his target of halving inflation over the course of the year with two months to spare.