Wages in the UK grew 2.7% year-on-year, which is the highest wage growth in almost a decade. This confirms the view of the Bank of England that inflationary pressures are building. We have long stated that this view of a potential rise in inflation is overly optimistic in our view, but the strong economic data in the third quarter, together with the accelerated wage growth, indicates that we have to revise our opinion on this matter. Nevertheless, there are obviously bigger fish to fry in the UK as the Brexit deadline closes in and the likelihood of a hard Brexit increases. We still expect a last minute deal on a withdrawal agreement that would trigger an acceleration of investment activity in the UK as uncertainty is removed. In this main scenario, wage inflation should continue to rise and the Bank of England would be forced to hike rates at an accelerated pace in 2019. But for that scenario to materialise, we first need a political solution to the current quagmire.
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(Almost) Daily Market News Update
- Published:
17 Oct 2018 -
Author:
Joachim Klement -
Pages:
6
Wages in the UK grew 2.7% year-on-year, which is the highest wage growth in almost a decade. This confirms the view of the Bank of England that inflationary pressures are building. We have long stated that this view of a potential rise in inflation is overly optimistic in our view, but the strong economic data in the third quarter, together with the accelerated wage growth, indicates that we have to revise our opinion on this matter. Nevertheless, there are obviously bigger fish to fry in the UK as the Brexit deadline closes in and the likelihood of a hard Brexit increases. We still expect a last minute deal on a withdrawal agreement that would trigger an acceleration of investment activity in the UK as uncertainty is removed. In this main scenario, wage inflation should continue to rise and the Bank of England would be forced to hike rates at an accelerated pace in 2019. But for that scenario to materialise, we first need a political solution to the current quagmire.