UK Pay Growth Sparks Concern Over Interest Rate Cuts: Expert Warns of Limited Room for Reduction
A senior policymaker at the Bank of England has issued a warning that strong pay growth in the UK could limit the extent to which interest rates are cut this year. According to Megan Greene, a member of the Bank's monetary policy committee, the recent data on wage growth suggests that it may have "run its course" and is unlikely to slow down significantly anytime soon.
Greene's comments were made at a speech in London, where she highlighted that employers are expecting pay rises of 3.5% or more this year, which could put upward pressure on inflation if productivity growth does not keep pace. The latest official figures showed wage growth weakening slightly to 4.5%, but Greene is skeptical that productivity will rebound this year.
The Bank's own forecast evaluation report has found that the central bank consistently underestimated the full effects of inflation that followed the energy price shock in 2022, highlighting the need for improved modeling and understanding of key economic mechanisms.
Meanwhile, a closely watched survey of UK businesses revealed a sharp rise in costs in January, with companies citing elevated wage pressures alongside rising transport bills and raw material prices as contributing factors. The purchasing managers' index showed that firms are making the greatest increase to their own prices in more than a year, while many respondents reported a "steep loss" of jobs, particularly in the hospitality sector.
These findings have led City economists to reduce their expectations for interest rate cuts this year, with the first quarter-rate cut now not expected until June. However, Greene's warning serves as a reminder that the UK economy remains vulnerable to external factors, such as the US Federal Reserve's decision on interest rates, which could impact inflation in the UK.
As the Bank of England navigates its monetary policy decisions, policymakers will be closely watching these indicators to determine whether pay growth and other economic trends will continue to support or challenge their efforts to manage inflation.
A senior policymaker at the Bank of England has issued a warning that strong pay growth in the UK could limit the extent to which interest rates are cut this year. According to Megan Greene, a member of the Bank's monetary policy committee, the recent data on wage growth suggests that it may have "run its course" and is unlikely to slow down significantly anytime soon.
Greene's comments were made at a speech in London, where she highlighted that employers are expecting pay rises of 3.5% or more this year, which could put upward pressure on inflation if productivity growth does not keep pace. The latest official figures showed wage growth weakening slightly to 4.5%, but Greene is skeptical that productivity will rebound this year.
The Bank's own forecast evaluation report has found that the central bank consistently underestimated the full effects of inflation that followed the energy price shock in 2022, highlighting the need for improved modeling and understanding of key economic mechanisms.
Meanwhile, a closely watched survey of UK businesses revealed a sharp rise in costs in January, with companies citing elevated wage pressures alongside rising transport bills and raw material prices as contributing factors. The purchasing managers' index showed that firms are making the greatest increase to their own prices in more than a year, while many respondents reported a "steep loss" of jobs, particularly in the hospitality sector.
These findings have led City economists to reduce their expectations for interest rate cuts this year, with the first quarter-rate cut now not expected until June. However, Greene's warning serves as a reminder that the UK economy remains vulnerable to external factors, such as the US Federal Reserve's decision on interest rates, which could impact inflation in the UK.
As the Bank of England navigates its monetary policy decisions, policymakers will be closely watching these indicators to determine whether pay growth and other economic trends will continue to support or challenge their efforts to manage inflation.
he's like "what's the big deal" but i'm over here like "dude we might actually see no rate cuts this year" 
and then i started thinking bout how my salary is literally going up by 4.5% this year lolol it's kinda scary thinking about inflation rising again, i mean i need that extra $$$ to pay for avocado toast 
what if the economy gets all messed up? 
. The fact that wages are still growing strongly despite energy prices being lower makes me think that the economy's not as resilient as we thought. It's like, we're seeing these huge jumps in costs and prices across the board, and it's gonna take some serious adjustments to get inflation under control 
. And yeah, the Bank of England is gonna have to keep an eye on things from both sides - they can't just wait for interest rates to go down without making sure that pay growth isn't driving up prices too much 
. 3.5% pay rise? That's a big number! And Greene's right, if productivity don't match that growth, we might see prices goin' up instead of down 
, but if productivity growth doesn't keep up, it could be bad news for the economy... and the Bank of England is trying to keep inflation in check, right? So, if they can't make their predictions about interest rates more accurate, how are they gonna know when to cut them or not? It's like a big puzzle, and I don't think anyone has all the pieces yet. I'm not saying we should be too concerned, but it's def worth keeping an eye on...
I'm surprised they're not expecting a bigger hit from rising wage costs, considering the energy price shock last year 
. Here's an interesting stat: according to the Bank of England's own data, inflation expectations have actually increased in recent months, which could be due to strong pay growth 
. The latest trade balance figures showed a £6.8 billion increase in the trade deficit between Jan 2024 and Jan 2025 
that's a bummer for people struggling with debt 
. 4.5% wage growth is still pretty sweet 
, but it's good that policymakers are keeping an eye on inflation 
. can't let external factors mess with the UK economy again 
.
. I reckon there's more to this story than meets the eye, you know? 
with wages expected to rise by 3.5% or more this year that's a pretty steep hill for productivity to climb over 
meanwhile, businesses are feeling the pinch too - they're raising their prices and some are even losing jobs 
it's not looking good for interest rate cuts this quarter... might be better to wait till june 
i think the bank needs to keep a close eye on these trends and adjust its strategy accordingly 
... but seriously though, these strong pay growth numbers gotta be a bit concerning 
Now it seems like we're just seeing a bunch of businesses passing on higher costs to consumers instead of actually increasing output 
. Remember when Alan Greenspan was the one dealing with that? Anyway, I think it's safe to say that pay growth is on the rise again, and it's got everyone in a twist. Like, what happened to the days of steady job security? Nowadays, it's all about the Benjamins 
. Can't we just have a stable economy for once?! But seriously, folks, this interest rate business is getting pretty complicated. Maybe we should just take a cue from the 80s and let the free market handle it? 
like in personal life, we get caught up in our own momentum and forget to slow down. that's what's happening here with pay growth - it's getting ahead of itself and making people think they can just keep on raising the stakes forever. but the thing is, there's only so much room for adjustments before things start to tip over. 
we gotta learn to be patient and let things level out a bit, 'cause otherwise we're just setting ourselves up for a bigger mess down the line.
about inflation they cant even get it right 
. and whats with these interest rate cuts? 
. hopefully the Bank of England gets it right tho 
. I think we need to be careful not to underestimate the impact of these external factors on our own economy. The Bank of England needs to stay vigilant and make informed decisions that balance economic growth with inflation control 
. So yeah, interest rate cuts are definitely not out of the question this year, but you can bet your bottom dollar that it'll be a bumpy ride