HSBC has warned that a Labour victory in the general election could lead to higher unemployment and increased mortgage interest rates.
The bank highlighted that Labour’s proposal for a “genuine living wage” might elevate labour costs for employers, potentially leading some businesses to reduce their workforce.
Additionally, if companies raise prices to cover higher wages, the Bank of England might keep interest rates elevated to control inflation. Labour plans to implement a minimum wage reflecting the cost of living, extending it to all adults, not just those over 21, as is the current standard.
HSBC pointed out that increasing the national living wage from £11.44 to the proposed “real living wage” of £12 an hour in April 2025 would represent a significant cost increase for employers. HSBC senior economist Elizabeth Martins explained that a higher minimum wage could raise costs and reduce efficiency, leading to higher unit labour costs.
This could result in higher unemployment or sustained inflation pressures, prompting the Bank of England to maintain higher interest rates for a longer period.
Martins noted that while the UK’s minimum wage has not previously had a significant negative impact on unemployment, there is uncertainty about the threshold at which it would begin to do so.
