The Bank of England has raised the base rate yet again, this time to 5.25 per cent, a high not seen since April 2008. Like a child trapped in the back seat of a sweltering car, the response of many people will be: ‘Are we nearly there?’
Many people seem to think so – that perhaps there will be one or two rises to come before rates peak and perhaps even start to fall modestly next year. Markets seem to think that 5.75 per cent will most likely be the summit.
I wouldn’t be so sure. What stands out most from the Monetary Policy Report that accompanied the interest rate decision is the expectations for earnings. Private sector pay rose by 7.7 per cent in the 12 months to May, it observes, noting that this was ‘materially above’ the figure it was expecting, and on which it based its last interest rate decision.
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