UK wages grow at record rate

August 15, 2023

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UK wages grow at record rate

Wages grew at a record annual pace in the April to June period, according to new official figures.

Regular pay rose by 7.8%, the highest annual growth rate since comparable records began in 2001. This better than expected increase has fuelled forecasts the Bank of England will be forced to raise interest rates once again in new efforts to continue calming rising inflation.

Inflation has eased but remains high at 7.9%. The latest inflation figures are due out on Wednesday and analysts expect them to show price growth slowed again during July to between 6.7% and 7% respectively.

However, that remains far higher than the Bank of England's target to keep inflation at 2%. Stronger wages will stoke concerns that price rises will take longer to ease.

Markets are also forecasting that interest rates could now peak at 6% from 5.25% currently. Only a few days ago, rates were expected to peak at around 5.75%. However, there are now indications in the ONS's data that the UK jobs market is beginning to weaken, with the unemployment rate rising slightly from 4% to 4.2%, while the number of people in jobs declined.

Annual average pay growth in the private sector has continued to outpace the public sector at 8.2%, with the latest data showing that wages in the public sector grew at an annual pace of 6.2% between April and June of this year.

The number of vacancies in the UK jobs market fell again, down 66,000 between May and July. However, there are still more than one million vacancies. 

These latest wage figures are likely to intensify political debate over next year's rise in the state pension. It is based on wage growth between May and July, which the ONS will release next month. The inflation figure for August is also used to decide pension payments. This data will be anticipatedly released in September of this year.

The latest set of figures signal that wage growth remains relatively high and rising. That is likely to prompt discussion over the potential increase in the state pension, and the allocation of government spending.

Russia hikes interest rates to 12% as rouble falls

Russia has hiked interest rates to 12% after the rouble fell to its lowest value in 16 months.

The currency fell past 100 per dollar on Monday, prompting Russia's central bank to hold an emergency meeting. The Bank of Russia said it decided to raise interest rates from 8.5% to curb inflation, which hit 4.4% in August.

Pressure has been mounting on the Russian economy due to imports rising faster than exports and military spending growing for the Ukraine war. The bank said "inflationary pressure" was building, but that its target was to bring inflation, which is the rate prices rise at, down to 4% by 2024.

Russia has been widely targeted with sanctions by Western countries following its invasion of Ukraine in February 2022. The rouble immediately plummeted after war first broke out, but was bolstered by capital controls and oil and gas exports.

However, it has now lost about a quarter of its value overall when compared to the US dollar since Ukraine was invaded and this week more than 100 roubles was needed to buy one dollar, a stark contrast from pre conflict levels.

It is not the first time the Bank of Russia has been aggressive with interest rate hikes. When Russia first attacked Ukraine the bank raised rates from 9.5% to 20%, but began cutting them shortly afterwards in response.

Since the outbreak of war, many EU countries which relied on Russian oil and gas have pledged to rid themselves of imports from the country and find alternative suppliers.

EU leaders introduced a price cap plan to limit the amount Russia earns from its oil exports and the country has also been excluded from Swift, an international payment system used by thousands of financial institutions.

Singapore narrows 2023 growth forecast on apparent ‘weak’ external demand

Singapore has narrowed its economic growth forecast to a range of 0.5% and 1.5% for this year, citing sluggish external demand amid a weak global economy.

The latest growth forecast was concluded from an earlier range estimate of 0.5% to 2.5%, said the Ministry of Trade and Industry on Friday of last week.

Gross domestic product for the April to June quarter grew 0.5% year-on-year, falling short of the government’s advance estimate of 0.7% announced in July of this year.

On a quarter-on-quarter adjusted report, Singapore’s economy eked out marginal growth of 0.1%, a reversal from the 0.4% contraction in the first quarter of this year, narrowly avoiding a technical recession or two consecutive quarters of contraction in the process.

The exports-led manufacturing sector shrank by 7.3% year-on-year in the April-June period, worse than the 5.4% contraction in the previous quarter.

In particular, manufacturing output is likely to be weighed down largely by output contractions in the electronics and precision engineering clusters given the global electronics downturn, the ministry added in a further statement.

Growth in the finance and insurance sector is also expected to be sluggish as a result of continued weakness in the external economic situation and tight financial conditions.

The government also highlighted downside risks in the global economy, adding that the outlook for the rest of the year remains unclear.

These include more persistent than expected inflation in the advanced economies, which could induce tighter global financial conditions and lead to a larger retraction in global spending.

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