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UK Wage Growth and Country Garden in Focus 

Highest UK wage growth on record, trouble for China's property market, unemployment above expectations in UK, and a rise in wage expectations.

UK Wage Growth Rises to Highest on Record

UK wage growth has risen to record highs, raising concerns that a hot labour market will continue to feed into inflationary pressures. The release of this morning’s data indicates that average wages excluding bonuses grew 7.8% on an annualised basis in the three months up to June, beating market expectations by 0.4%. This brings the average weekly pay check to £613. Similarly, average earnings including bonuses also came in stronger-than-expected, hitting 8.2% against expectations of 7.8%.

When assessing the disparity between private sector and public sector, today’s data revealed that private sector wages excluding bonuses rose 8.2% against the public sector’s 6.2%. For the private sector this marked the highest pace of growth on record outside of Covid.

Bailey has repeatedly expressed concern over the implications of a wage price spiral and earlier this summer stated that “both price and wage increases at current levels are not consistent with the inflation target”. His comments were echoed by the Chancellor, Jeremy Hunt who stated at a Mansion House dinner that persistently high inflation “means taking responsible decisions on public finances, including public sector pay, because more borrowing is itself inflationary.

Given today’s print, markets have upwardly revised their rate forecasts from the Bank of England. As such, implied money market expectations are now fully pricing in a 25bps rate hike for Threadneedle Street’s next policy meeting on 21 September. Meanwhile, money markets are also pricing in a terminal rate of just under 6% to be achieved in Q1 2024, implying that that there is a possible prospect of three further 25bps rate hikes.


Country Garden in Trouble

Yesterday, concerns around China’s property market continued to percolate through global financial markets as shares in China’s largest private property developer, Country Garden shed 18% throughout yesterday’s session. This came after a number of companies expressed concern that they had not received debt service payments. At the end of the last calendar year, Country Garden had total liabilities of some $194bn. According to the Telegraph “its potential failure to repay its debts would dwarf the default of developer China Evergrande two years ago”. Presently, Country Garden looks to be in default territory if it fails to make interest payments on its bonds by next month. Instability around Country Garden has renewed fears over the fragility of the Chinese property market, with far reaching consequences around the world. As markets weighed up contagion risks, pressure is continuing to mount on Beijing to conduct fiscal measures to help stimulate the economy.

UK Unemployment Rises Above Expectations

This morning’s data release from the ONS also indicates that UK unemployment has risen 0.2 percentage points to 4.2%. This came in higher than the general market consensus of 4% and marks the highest print since Q4 2021.

Meanwhile, job vacancies fell to 1.02m in June from 1.036 in May and 1.057m in April. Hence, despite unemployment rising, there is still around 1.4 jobs per unemployed person (excluding agriculture, forestry and fishing).


Public Sector Wage Expectations Rise to Highest Level in Over a Decade

According to the Chartered Institute of Personnel and Development (CIPD), public sector wage expectations have risen to highest their level in over 11-years. Public sector pay expectations have now jumped 0.7 percentage points from 3.3% to 4% over the last quarter. This survey records wage growth expectations from 2,000 companies across the public sector and was recorded between early June and early July, a number of weeks before Prime Minister Rishi Sunak offered a public sector pay rise of 6% many public sector workers including teachers, doctors, police officers and military personnel.

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