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Morning Update

Biden travels to Israel, headline inflation remains the same, and growth of UK wages.

This morning’s headlines are centring on the deadly explosion at al-Ahli Hospital, Gaza, which Palestinian officials say has killed at least 500 people. As the BBC notes “Hamas said the Israeli military was responsible for the strike. Israel in turn has blamed the Palestinian Islamic Jihad, an armed group based in Gaza”.

The explosion comes as President Joe Biden travels to Israel to discuss the ongoing situation as geopolitical tensions continue to rise ahead of an expected Israeli ground offensive in Gaza. As US Secretary of State Anthony Blinken stated earlier this week, Biden would be “coming here at a critical moment for Israel, for the region and the world”. Yesterday’s explosion also led Jordan to cancel Biden’s visit there where he was scheduled to meet Jordanian and Egyptian leaders and the President of the Palestinian Authority, Mahmoud Abbas. There are some reports that a meeting will still take place over the telephone.

Biden’s visit comes as Iran’s foreign minister, Hossein Amir-Abdollahian, warned earlier in the week that it could take “pre-emptive action” against Israel and that the US will be subject to “significant damages” if the conflict in Gaza escalates.


Diplomatic hopes of trying to open the Rafah crossing between Egypt and Gaza again failed yesterday. Israeli officials are remaining resolute in saying that the siege will continue until Hamas frees the hostages that were taken last week during Humas’ attack. The siege has resulted in water, food and energy supplies running dangerously low across Gaza with all three of the Strip’s desalination plants also being taken offline.

As the UN continues to raise concern over the humanitarian situation in Gaza, some 100 tonnes of aid remain stationary in the Egyptian town of Arish. Cairo have reiterated that they will not open the Rafah crossing until the security of their personnel can be guaranteed. The UN’s humanitarian chief, Martin Griffiths, also told the FT earlier this week that Egypt “will not allow Palestinians from Gaza into Egypt, because they fear for a great influx, which they will then have to take responsibility for, for an indefinite period”.

UK Inflation

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.

UK Wage Growth

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.

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