Traders speculate that by year-end, the Bank of England will hike interest rates to 5.75pc in response to record-breaking wage growth outside of the pandemic period.
The market is fully anticipating that interest rates will climb by 0.25 percentage points over the subsequent three gatherings of the Monetary Policy Committee, starting from the current level of 4.5pc.
Furthermore, traders are progressively expecting the Bank to continue the same pace of rate increases at the subsequent two meetings in November and December, which could pose challenges for mortgage holders.
Should these increases materialize, it would result in the highest borrowing costs since November 2007.
The latest statistics from the Office for National Statistics reveal that regular pay, not including bonuses, saw a rise of 7.2pc in the three months leading to April, concurrently reaching a new record in employment levels.
The Bank of England uses wage growth as a measure of inflation’s increasing presence in the economy, despite easing the initial impact of the energy crisis.
Hussain Mehdi, a macro & investment strategist at HSBC Asset Management, stated, “The Bank of England is facing a significant issue with wage growth; it is excessively high to permit inflation to meet the 2pc target.”
According to Emma Mogford, a fund manager at Premier Miton Investors, “The labour market is unexpectedly constrained with decreasing unemployment and rising wage inflation. Despite broadly benefiting the UK economy, this situation presents a significant challenge for the Bank of England.
She added, “This may necessitate maintaining higher interest rates for a longer period to restore inflation to normal levels.”
