Morning Update

This morning’s inflation data indicated that headline inflation remained unchanged from last month’s print, coming in at 6.7%. This surpassed expectations of 6.5% as fuel prices and the cost of hotel stays rose, offsetting the slowdown in food and drink prices. The print serves as further indication that the Bank of England continue to face headwinds as they try to get inflation back down to their 2% target.

Core inflation similarly came in above expectations, hitting 6.1% against projections of 6.2%. While this marks a marginal slowdown from last month’s print of 6.2%, the prevalence of elevated levels of core inflation further represents a significant challenge for Threadneedle Street, given how it is generally recognised as “sticky”. September’s core CPI print is nonetheless the lowest since January, but just one percentage point off from May’s all-time high level of 7.1%.

Despite inflation figures coming marginally above forecasts, money markets implied rate expectations indicate that there is around a 25% chance of a 25bps rate hike from the Bank of England at their next monetary policy meeting on 2nd November.

Yesterday, data from the ONS indicated that UK wages (excluding bonuses) have increased 7.8% on an annualised basis in the three months to August. This came in line with market expectations and marks only a marginal slowdown from last month’s print of 7.9% where wage growth for regular pay hit an all-time high (since records began in 2001 at least). Notwithstanding how wage growth remains close to record highs, yesterday’s print nonetheless marks the first slowdown in growth since January. This is perhaps indicative more generally of the slowdown in the labour market which has seen unemployment tick up and job vacancies fall.

When including bonuses, average earning’s increased 8.1% missing expectations by around 20bps and marking a slowdown of 40bps from last month’s print. Given current levels of inflation, wage growth in real terms rose 1.1%, giving some modicum of respite to households which have seen real incomes fall for much of the last few years. This thus marks the highest rise in real wage growth since September 2021, when it hit 2.2%.

When looking at the public sector, annualised regular pay growth (for the three months up to August) in the public sector was 6.8%, marking the highest level since records began in 2001. In the private sector, this figure came in at 8%, marking one of the highest levels outside of the pandemic.

Problems with data collection mean that figures have not been published for the UK’s unemployment rate and labour force participation level.