14 May 2024
If you are covering the latest news in financial markets, please find below a comment from Lindsay James, investment strategist at Quilter Investors:
“Wage data published this morning by the ONS has shown that annual growth in regular earnings, excluding bonuses, was 6% in the period from January to March, showing no change on the prior three-month period to February and coming in above the 5.9% expected. Similarly, the measure of total pay growth, which includes bonuses, came in at 5.7%, above expectations for a rise of 5.5%. Real pay growth accelerated to 2.4% in the month of March, the highest rate since July 2021 as pay growth has remained stubborn at around this level even as CPI has been falling. This rate of growth has been enjoyed across the wider economy, led by finance and business services, and manufacturing, although construction is the one area that has seen pay sharply lag inflation, with annual growth rates of regular pay standing at just 2.6%.
“This will likely not come as a complete surprise to the Bank of England’s Monetary Policy Committee, who are well aware that wage growth is the one area of the inflationary backdrop that is refusing to submit to the general direction of travel. With the Labour Force Survey under increasing scrutiny, the MPC has already complained that fewer survey responses have served to make gaining insights into the true strength of the labour market more difficult. This data will reinforce their view that it remains one of the most important signals for inflation, which has already led to sharply diverging trends between CPI for services and for goods, and could dent the chances of the first cut coming as early as June.
“Coming a day ahead of US CPI data, which remains probably the most important signal in global equity markets, investors will be wary. Whilst the market expects headline CPI to fall only to 3.4%, from 3.5% last month, recent surveys have signalled rising inflation expectations amongst consumers, as the recent pick-up in inflation feeds through to the consumer psyche, an effect which often become self-fulfilling. We are likely to hear more cautious messaging from the Federal Reserve as a result, in a blow to President Biden on a day when new polls have shown Donald Trump retains his lead in almost all the swing states.”
