Bank of England meeting
What effect does the BoE’s announcement have on the UK economy,
and what does it mean for traders?
The recent wage growth figures hammer another nail into the coffin of the ‘higher interest rates’ thesis for the UK. While the headline numbers showed growth, as average weekly earnings rose 2.9% excluding bonuses in nominal terms and up 0.4% excluding bonuses in real terms (i.e. adjusted for inflation), compared to a year earlier they were unchanged.
Any investor needs to understand the difference between nominal and real returns, and on this basis UK workers are not seeing rate increases. An annual rate of 2.3% for pay growth (in nominal terms) is also not something to crow about, since UK inflation is 2.5% for consumer price index (CPI) and 3.3% for the retail price index (RPI). In fact, wage growth continues to decline, from 3.1% to 2.8%, and then 2.6% to 2.3% over the past few months.
The Bank of England (BoE) opted last week to leave rates unchanged, a move that was well-telegraphed but stands in opposition to their stated aims of engaging in ‘modest tightening’ of monetary policy. In February of this year they argue that tightening might need to occur earlier than expected during the November meeting of the Monetary Policy Committee (MPC).
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