Wage Growth Pulls the Plug on Services Inflation – And Maybe a Rate Cut?
Imagine a summer night where Taylor Swift’s stadium shows sky‑high prices, yet by August the economy’s purse is feeling lighter. That’s the real story behind June’s inflation spike – a one‑off hit from concert‑tour crowds, not a wage‑bleeding strike.
What the Numbers Say
- Pay growth fell dramatically. The June flash estimate skidded from 6.0% to a modest 3.6% year‑on‑year, a sharp fall caused by a one‑time pay push for NHS staff.
- Monthly wages dipped. Median “business as usual” pay slid to £2,382 from £2,392, the first contraction in six months.
- Bank of England CFO survey. Expected wage jump trimmed to 4.2%, inching toward pre‑pandemic normal of about 3.5%.
- Future outlook. With wage growth easing, services inflation could flatten to the persistent 2% target by year‑end, a scenario that makes rate cuts appear far more likely.
Why the Bank Doesn’t Jump the Gun
Even as wage data cools, the Monetary Policy Committee keeps a wary eye on UK politics. The new Labour government plans a minimum‑wage hike and will ban zero‑hour contracts. These initiatives are guaranteed to give services a price‑push again, so the MPC isn’t ready to lower rates until after all uncertainties settle.
Expert Take
- Simon Bridgland at Release Freedom admonishes, “We’re not dropping the rate until the 2% target sticks. Likely September or November.”
- Stephen Perkins of Yellow Brick Mortgages warns, “Wage surges could flip the script if a 5.5% public‑sector bump arrives.”
- Michelle Lawson at Lawson Financial notes, “People sigh it’s time to get money back, but the bank may still be playing the waiting‑game.”
Bottom Line
If the current wage trend holds, services inflation should calm, tilting the policy room toward a rate cut by September – but political winds might keep rates steady a bit longer. Keep an eye on the numbers; they’re the real stage‑hands in Britain’s economic drama.
