Although the US Fed kept interest rates on Thursday, a rate rise across the pond is not far away. And on the face of it, the pick-up in UK pay growth revealed last week suggested that the Bank of England might not actually be that far off hiking either. However, we don’t think that the MPC needs to worry too much about developments in the labour market just yet.
Whether stronger pay growth is an inflationary concern depends on what is driving it. And it still looks as though it at least partly reflects an improvement in productivity growth. Accordingly, growth of unit labour costs should remain subdued, preventing the labour market from becoming a reason to raise interest rates quickly.
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