Gordon Brown may have outlined the case for growth in his Budget yesterday, but more evidence has been published today supporting the case for further interest rate rises, which could put the squeeze on consumer spending.
In turn, that could upset what has become the central pillar of the economy, and possibly result in consumers facing higher personal debt repayments at the same time taxes increase to pay for higher government spending in the next year or two.
Bonuses in the City have significantly boosted national average private sector wage growth, the Office for National Statistics said yesterday.
And it wis no small jump: average pay grew by 6.6% in January compared to a rate of 3.4% in December.
Although bonuses are a short-term factor, the chancellor himself has noted that unemployment overall as measured by official figures is continuing to fall over time, and the country is enjoying the longest period of economic stability and growth “since the industrial revolution”.
The has followed up the wage growth news with figures published today showing February marked the third consecutive month of increasing retail sales, with the value of sales up by 6.5% on the same month last year.
Foreign exchange markets have reacted to the news by pushing up sterling against the dollar, to about $1.83 in the past hour according to Bloomberg figures, suggesting the markets expect rising interest rates.
The MPC says in its minutes published yesterday that sterling rates against the dollar, euro and other key currencies was “the main financial market development” in the month leading up to its meeting on 3 and 4 March.
Committee members voted unanimously to retain the base rate at 4%, but economists fear further tightening of the labour market coupled with rising private sector pay will tip the Bank’s hand on rates.IFAonline
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