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The Bank of England’s chief economists has said pay rises risk fuelling inflation after official figures showed civil service bonuses helped push pay growth to a 2-year high.
Huw Pill said growth of 7.7pc in average wages was not “consistent” with the Bank’s target of reaching 2pc inflation.
Mr Pill said the Bank looked closely at the cost of services, pay growth and the tightness of the labour market, adding: “The news there frankly is not so good.”
Pay including bonuses rose by 7.9pc in the three months ending in September, Office for National Statistics (ONS) figures published on Tuesday showed, outpacing inflation of 6.7pc.
The figure was bolstered by public sector bonuses, after the Government agreed to give civil servants £1,500 to ease the cost of living crisis and resolve industrial action.
The one-off payments helped fuel the biggest jump in real wages since October 2021.
Excluding bonuses, wages grew by 7.7pc, or 1.3pc in real terms – the fastest since September 2021.
Chancellor Jeremy Hunt said it was “heartening to see inflation falling and real wages growing, keeping more money in people’s pockets.”
However, Mr Pill said: “Over the summer pay growth has remained very strong. We certainly wouldn’t see pay growth at that rate as consistent with achieving the 2pc inflation target on a sort of ongoing basis.”
Mr Pill’s remarks come only a week after he became the first rate-setter to suggest that interest rates could start falling by the middle of next year. Governor Andrew Bailey has since sought to tamp down hopes of looming rate cuts by saying it is far too early to consider them.
Speaking on Tuesday, Mr Pill told an audience at the Bristol Festival of Economics there had been “significant progress and improvement” in tackling inflation but said the Bank needed to “see the job through”.
Swati Dhingra, another UK rate-setter, warned that Britain was also at risk of seeing more turbulence in food prices as a result of geopolitics.
Speaking in Bristol, she said: “We’ve got to at some point really have a big societal conversation about the fact that many of our prices, not just in food but more broadly, are not set in the UK, they are set abroad.
“We are dependent on countries outside. We want to keep in mind we do not have that much control over what we are doing. There is an element that we depend on foreigners for it, and therefore what happens in those countries.
“Interest rates are not going to get your supermarket prices down.”
Growth in real wages signals that the worst cost of living crunch in decades is easing as energy costs and food prices ease.
Figures published on Wednesday are expected to show inflation slowing from 6.7pc in September to 4.7pc.
Data published in the US showed inflation fell by more than expected in October, dropping from 3.7pc to 3.2pc.
This sparked a fall in Treasury yields and a rally on Wall Street, as traders reasoned the figures made another interest rate rise from the Federal Reserve less likely.
The dollar also weakened by 1.6pc against the pound.
Elsewhere, the ONS said on Tuesday that unemployment remained unchanged at 4.2pc.
In a sign that higher borrowing costs are starting to weigh on the jobs market, vacancies fell by 58,000 to 957,000. It marks the 16th consecutive period that job openings have fallen.
Darren Morgan, director of economic statistics at the ONS, said: “Our labour market figures show a largely unchanged picture, with the proportions of people who are employed, unemployed or who are neither working nor looking for a job all little changed on the previous quarter.”
However, the latest unemployment and pay growth figures are described as “experimental” by the ONS.
The stats body last month moved to publish only barebone employment data after admitting falling response rates to its surveys meant the data was not reliable.