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Other: Bonuses boost UK wages

Other: Bonuses boost UK wages

In the UK, the Minutes of the latest Bank of England policy meeting in April showed a 7-2 vote in favour of unchanged rates at 5.25%, with the two dissenters (Besley and Sentance) voting for a rate hike to 5.50%. This was the same vote result as in February. Compared to the March meeting, Blanchflower backed again unchanged rates instead of a rate cut. The Minutes revealed that there is a three way split within the MPC, with Blanchflower and probably also Lomax seeing both upside and downside prospects to inflation, with King, Bean, Gieve, Barker and Tucker seeing primarily upside risks to inflation, but not enough to warrant an immediate increase and with Besley and Sentance seeing also upside risks to inflation and sufficiently strong enough to warrant an immediate increase. Following yesterday??™s shocking inflation report, the moderate group will almost certainly join Besley and Sentance in their vote for a rate hike at the May meeting. At the April meeting, the moderates feared that an unexpected rate hike might lead to an unwarranted upward shift in the yield curve and thought that any change would also be better explained in the context of the May inflation report. The voting result and split thinking at the MPC nevertheless indicates that there is no thriving sentiment to raise rates, which may result in a wait and see position following the now expected May hike, as inflation is expected to fall in the months to come.

The UK labour market report provided some mixed signals. The annual growth in average earnings including bonuses was up to 4.6% in the three months through February compared to 4.2% in January and the highest since the beginning of 2004. Excluding bonuses annual earnings growth was unchanged at a moderate 3.6%. The strong rise of earnings including bonuses raises some concerns at the MPC that the upward risks to pay growth are materialising. Other details of the report were less worrying, as employment fell 47K over the quarter, even while the jobless claims fell again by 9.2K in March.