[Asia Economy Reporter Park Byung-hee] As the wage growth rate in the UK soars to an all-time high and corporate demand for new hires surpasses 1 million for the first time ever, there are forecasts that the Bank of England (BOE), the UK's central bank, will bring forward the timing of its interest rate hikes.
According to Bloomberg on the 17th (local time), the UK Office for National Statistics announced that the three-month average wage as of June rose 8.8% year-on-year, marking the highest growth rate ever recorded.
The surge in corporate demand for labor is interpreted as leading to the wage increase. As of July, corporate demand for new hires exceeded 1 million for the first time in history.
Bloomberg analyzed that while the base effect from last year's COVID-19 pandemic partly explains the sharp wage increase from April to June, it is clear that pressure for wage hikes is growing.
The Office for National Statistics stated that even excluding the base effect from last year, the wage growth rate from April to June was between 4.9% and 6.3%. It also added that the wage growth rate excluding bonuses was recorded at 3.5% to 4.9%.
Wage increases can stimulate overall inflation as they expand consumer purchasing power and increase corporate cost burdens.
JPMorgan Chase, the largest bank in the US, said the UK labor market is improving and predicted that the UK could raise its benchmark interest rate in the second quarter of next year. This is six months earlier than previously expected. The expected rate hike is 0.15 percentage points.
JPMorgan expects the BOE to raise the current benchmark interest rate from 0.1% to 0.25% in the second quarter of next year, followed by an additional hike 6 to 9 months later. JPMorgan economist Allen Muns explained, "This reflects the record-high wage growth rate and the scale of new hiring."
The general market expectation for the UK benchmark interest rate is that the BOE will not raise rates before November next year. However, JPMorgan, along with Bank of America (BOA), RBC Capital Markets, and HSBC Holdings, expects the BOE to implement at least one rate hike by mid-next year.
Andrew Bailey, Governor of the BOE, maintains the view that recent inflation is temporary and that the recent rapid economic recovery will not trigger inflation. The BOE expects inflation to peak at 4% by the end of this year and then fall to near the 2% monetary policy target in 2023.
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