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The pound extended gains after the release, rising as much as 0.3% to $1.2721. Image Credit: Bloomberg

London: UK wage growth accelerated to the strongest pace on record, adding to concerns that a tight labor market is feeding inflationary pressures.

Average earnings excluding bonuses rose 7.8 per cent in the three months through June compared with a year ago. That was the highest since records began in 2001 and up from the previous reading of 7.5 per cent, which was also revised up, the Office for National Statistics said Tuesday. Economists had expected a figure of 7.4 per cent.

The pound extended gains after the release, rising as much as 0.3 per cent to $1.2721.

The Bank of England is worried that soaring pay is pushing up prices across the economy. Policy makers led by Governor Andrew Bailey have said further signs that those pressures are persisting could result in another increase in interest rates.

The figures are the first of two batches of economic data that will guide the BOE’s next rate decision on September 21. Investors have almost fully priced in a quarter-point increase in the UK central bank’s key rate to 5.5 per cent, which would be the highest since early 2008. But the risk of a bigger hike next month has subsided after a drop in the headline inflation rate reported last month.

Economists expect UK inflation will fall again on Wednesday when July’s data is released. The Consumer Prices Index is forecast to slide to 6.7 per cent, the lowest since the start of last year but still more than triple the BOE’s 2 per cent target.

The ONS report on jobs published Tuesday showed further signs that the labor market is loosening. Unemployment rose to 4.2 per cent in the three months through June, up from as little as 3.5 per cent in August 2022. Residential rents in Dubai are starting to stabilize