We won’t be able to steady the ship on inflation while wages speed on
Latest survey data from the service sector — as supplied by S&P Global/CIPS UK Services PMI — shows growth at its weakest for three months as new orders begin to dry up.
It is a clear indicator that 13 successive rate rises are finally starting to stall the momentum in the economy. But while the interest rate medicine may be taking effect on activity, will it take the heat out of the inflation fever? Well there’s some good news on that — but plenty of bad.
Input and commodity prices as well as other business costs are falling sharply. All except one. Salaries.
Whatever the skipper says, workers who have endured a decade and a half of stagnant living standards are not going to miss out on a chance to boost their wages substantially when they are enjoying the whip hand in the labour market balance of power. Staff shortages are still chronic through the economy. It seems hopelessly unrealistic to expect workers not to cash in on that.
Separate research today from Oxford Economics suggest that earnings growth was forging ahead at 1.8% on a quarter on quarter basis in May and June, way ahead of the Bank’s expectation of 1%. That has the potential to counteract much of the reductions we have seen in other costs and make it far harder for the man at the helm to change his ship’s course before it crashes on to the rocks.
