Wage growth outstripping inflation puts May interest rate rise on cards

Higher pay packets for UK workers kept the Bank of England on course for a May rate hike n Wednesday.

Average wages rose 2.6% in the year to January — although when bonuses are included, the figure was higher still at 2.8%. That, along with unemployment close to 40-year lows of 4.3%, is likely to prompt the monetary policy committee to raise interest rates again. Including bonuses, pay growth is now higher than inflation after lagging behind since the Brexit vote.

ScotiaBank’s Alan Clarke said: “Real wages should turn increasingly positive throughout this year, representing a boost to consumer spending growth.”

The pound jumped more than half a cent against the dollar after the figures as the City bet on further action from Threadneedle Street.

Borrowing figures showed a deficit of £1.3 billion in February — swinging £2.5 billion from a £1.2 billion surplus the previous year. Borrowing for the 11 months of the financial year so far is £41.4 billion — £2.5 billion below last year — and likely to hit the Office for Budget Responsibility’s £45.2 billion deficit target.