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Pay rise surprise leads to forecasts of higher interest rates




UK wages have risen at their fastest rate in 20 years, excluding the pandemic, raising expectations that UK interest rates will have to rise.


Regular pay excluding bonuses increased by 7.2% in the three months to April, although it still lags behind inflation - the rate at which prices rise.


The Bank of England has warned big pay rises are contributing to the UK's still-high rates of inflation.


It has put up interest rates 12 times since 2021 to try to slow price rises.


Higher interest rates may be good for savers, but are driving up repayment costs for millions of mortgage holders.


And fears the Bank of England will raise interest rates higher than previously thought - from their current 4.5% to as high as 5.5% - have been causing turbulence in the mortgage market.


Lenders have been putting up rates and pulling hundreds of deals, causing uncertainty for borrowers.


On Tuesday, the government's borrowing costs - which directly impact mortgage rates - rose to their highest rate since last year's mini-budget.


Samuel Tombs, chief UK economist at Pantheon Economics, said the renewed pick-up in wage growth would "add fuel" to expectations for higher interest rates.


This was because the figures were"fanning the impression that the UK has a unique problem with ingrained high inflation".


Darren Morgan, director of economic statistics at the Office for National Statistics (ONS), said in cash terms, basic pay is now growing at its fastest since current records began, apart from the period when the figures "were distorted by the pandemic".


"However, even so, wage rises continue to lag behind inflation."


According to the ONS, pay when adjusted for inflation fell by 1.3% in the three months to April.



The rise in the minimum wage had had a "significant" impact on the April pay figures, said Andrew Hunter, co-founder of the job search engine Adzuna.


The minimum wage - known as the National Living Wage - rose to £10.42 an hour in April for those aged 23 and over.


"Nearly two million workers in the UK saw an almost 10% increase in pay this spring," Mr Hunter told the BBC's Today programme.


Workers in multiple industries have held strikes since last summer as pay rates fail to keep pace with inflation. But the gap is narrowing as inflation starts to fall.


The Bank of England has warned sharp pay rises are likely to prolong the UK's still-high rates of inflation. The cost of living rose by 8.7% in the year to April, more than four times the Bank's 2% target.


Mr Hunter said: "Your average worker will be delighted that their pay on average is going up, but that's not necessarily a good thing for inflation."


The Bank of England governor, Andrew Bailey, told the House of Lords economic affairs committee that the latest figures on jobs showed the the labour market was "very tight".


"We've had a fall in the supply of labour, which is showing signs of recovering, but very slowly, frankly," he said.


"One of things firms pretty much universally say to me and have been saying to me for a little while, is that they find it so hard to recruit labour in the current market, they are not going to release labour."

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