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| UK borrowing costs soar above levels of Liz Truss premiership | UK borrowing costs soar above levels of Liz Truss premiership |
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| Stronger than expected job and pay data makes interest rate rise more likely, driving up two-year bond yields | |
| UK government borrowing costs have risen above the levels hit during Liz Truss’s disastrous premiership, after stronger than expected jobs and pay figures reinforced expectations that the Bank of England will raise interest rates next week. | UK government borrowing costs have risen above the levels hit during Liz Truss’s disastrous premiership, after stronger than expected jobs and pay figures reinforced expectations that the Bank of England will raise interest rates next week. |
| Two-year gilt yields – the interest rate on short-term UK government borrowing – increased by more than 0.2 percentage points to 4.83% on Tuesday, surpassing the level reached in the aftermath of Truss’s ill-fated mini budget. Yields are also the highest since the 2008 financial crisis. | Two-year gilt yields – the interest rate on short-term UK government borrowing – increased by more than 0.2 percentage points to 4.83% on Tuesday, surpassing the level reached in the aftermath of Truss’s ill-fated mini budget. Yields are also the highest since the 2008 financial crisis. |
| It comes after figures from the Office for National Statistics showed growth in average regular pay, excluding bonuses, strengthened to 7.2% in the three months to April – the highest level on record, excluding the Covid pandemic. | It comes after figures from the Office for National Statistics showed growth in average regular pay, excluding bonuses, strengthened to 7.2% in the three months to April – the highest level on record, excluding the Covid pandemic. |
| Fuelled by bumper pay rises in the City of London for employees in finance and business services, the latest snapshot showed total pay, including bonuses, also increased by 6.5% over the same period. | Fuelled by bumper pay rises in the City of London for employees in finance and business services, the latest snapshot showed total pay, including bonuses, also increased by 6.5% over the same period. |
| At those rates, pay growth still lags behind inflation – currently at 8.7% – meaning pay is falling in real terms, putting pressure on household finances. | At those rates, pay growth still lags behind inflation – currently at 8.7% – meaning pay is falling in real terms, putting pressure on household finances. |
| Financial markets are betting resilience in the jobs market could stoke persistently high levels of inflation, amid signs of companies continuing to push up wages to meet severe shortfalls in available workers. The Bank is widely expected to increase rates by at least a quarter point from the current level of 4.5% in response at the next meeting of its monetary policy committee on 22 June. | Financial markets are betting resilience in the jobs market could stoke persistently high levels of inflation, amid signs of companies continuing to push up wages to meet severe shortfalls in available workers. The Bank is widely expected to increase rates by at least a quarter point from the current level of 4.5% in response at the next meeting of its monetary policy committee on 22 June. |
| Megan Greene, who was appointed in April to join the MPC from next month, told MPs on the Commons Treasury committee on Tuesday that Threadneedle Street might have a tough time to return inflation to its 2% target. | Megan Greene, who was appointed in April to join the MPC from next month, told MPs on the Commons Treasury committee on Tuesday that Threadneedle Street might have a tough time to return inflation to its 2% target. |
| Saying that headline inflation should come down “fairly quickly” this year amid a stabilisation in energy bills, she warned that there was “some underlying persistence” in inflation. “Getting from 10% to 5% – and this goes for probably every major jurisdiction – is probably easier than getting from 5% to 2%.” | Saying that headline inflation should come down “fairly quickly” this year amid a stabilisation in energy bills, she warned that there was “some underlying persistence” in inflation. “Getting from 10% to 5% – and this goes for probably every major jurisdiction – is probably easier than getting from 5% to 2%.” |
| Economists said April’s large increase in wage growth could partly reflect low-pay employers responding to the 9.7% increase in the “national living wage” at the start of the month but said the rise in overall average wages was driven mainly by the momentum in higher-paying sectors. | Economists said April’s large increase in wage growth could partly reflect low-pay employers responding to the 9.7% increase in the “national living wage” at the start of the month but said the rise in overall average wages was driven mainly by the momentum in higher-paying sectors. |
| In a sign of continued strength in the British jobs market, the unemployment rate unexpectedly fell to 3.8% in the three months to April as companies continued to hire new recruits despite growing financial pressure from rising borrowing costs and subdued consumer demand. | In a sign of continued strength in the British jobs market, the unemployment rate unexpectedly fell to 3.8% in the three months to April as companies continued to hire new recruits despite growing financial pressure from rising borrowing costs and subdued consumer demand. |
| Employment rose by 250,000 in the three months to April, lifting the number of people in work overall above pre-pandemic levels for the first time and setting a fresh record high of more than 33 million. | Employment rose by 250,000 in the three months to April, lifting the number of people in work overall above pre-pandemic levels for the first time and setting a fresh record high of more than 33 million. |
| However, long-term sickness among working-age adults outside the jobs market continued to rise, reaching a new record high. | However, long-term sickness among working-age adults outside the jobs market continued to rise, reaching a new record high. |
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| Reflecting heightened economic uncertainty holding back recruitment in some industries, the number of job vacancies fell for the 11th consecutive period, dropping by 79,000 on the quarter to stand at just over 1m. | Reflecting heightened economic uncertainty holding back recruitment in some industries, the number of job vacancies fell for the 11th consecutive period, dropping by 79,000 on the quarter to stand at just over 1m. |
| Average regular pay growth in the private sector accelerated to 7.6%, the largest growth rate seen outside the pandemic period, when the figures were distorted by furlough and changes in employment. Public sector wage growth was 5.6%, the highest level since 2003. | Average regular pay growth in the private sector accelerated to 7.6%, the largest growth rate seen outside the pandemic period, when the figures were distorted by furlough and changes in employment. Public sector wage growth was 5.6%, the highest level since 2003. |
| Hussain Mehdi, a strategist at HSBC Asset Management, said the figures would add to pressure on the Bank to raise interest rates after inflation fell by less than expected in April. | Hussain Mehdi, a strategist at HSBC Asset Management, said the figures would add to pressure on the Bank to raise interest rates after inflation fell by less than expected in April. |
| “The UK labour market remains very tight and continues to confound expectations. For the Bank of England, wage growth is a big problem – it is simply at too high a level to allow inflation to hit the 2% target. And unlike in the US, there are no obvious signs that wage pressures are moderating.” | “The UK labour market remains very tight and continues to confound expectations. For the Bank of England, wage growth is a big problem – it is simply at too high a level to allow inflation to hit the 2% target. And unlike in the US, there are no obvious signs that wage pressures are moderating.” |