Inflation figures tomorrow are set to show prices are shooting even higher. Deutsche Bank forecasts the inflation figure to come in at 9.2%, well on its way to the Bank’s predicted peak of 10%.
The combination of a hot jobs market and soaring inflation gives the Bank of England little choice but to ramp up rates from 1% to perhaps 3% by the end of the year, further cutting consumer spending power.
Yesterday, rate setter Sir Dave Ramsden told MPs on the Treasury Select Committee: “Most of the members of the Committee think that further tightening in policy will be required.”
Thomas Pugh, an economist at RSM UK, said today’s data “will probably be enough to convince a majority of members on the Monetary Policy Committee (MPC) to vote for further rate hikes at the next meeting on 16 June.”
The pound, which has been under fierce pressure for weeks, rose 1.62 cents to $1.2479.While jobs are plentiful, pay is now falling behind inflation – wages rose 4.2% between January and March, well behind cost increases of 7%.
Tomorrow’s inflation figures for April are expected to indicate further pain. If the jobs market now also tails off, that increases the risk of a recession.
Pawel Adrjan of job site Indeed said: “The labour market remained on solid footing despite the 0.1% contraction in GDP in March as hiring activity remained high, with 2.1 million people starting a new job in the first quarter of the year.However, clouds are gathering on the UK’s economic outlook and with the cost of living crisis deepening, this could be the last strong month before we see a slowdown in the labour market, which tends to be a lagging indicator.”
Pay in some sectors is still rising sharply. In particular there is a City pay boom with financial services salaries up by nearly 11%, largely thanks to bonuses.
Victor Trokoudes of savings app Plum said: “There is also a big discrepancy between private sector pay growth at 8.2% and public sector growth at 1.6%.“Interestingly, private sector growth is largely down to bonuses which is not something the average person can safely rely on in the future, if their finances are to keep up with growing inflation.”
Yesterday Bank of England governor Andrew Bailey warned of an “apocalyptic” rise in food costs due to the war in Ukraine.He admits the Bank of England now faces its biggest test since gaining independence from the government 25 years ago.