UK wage pressure picks up in boost to Bank of England confidence over rate decision

The Bank of England's agents reported expectations among firms were for wage settlements to be 'clustered' around 2.5 to 3.5 per cent in 2018, up from the 2 to 3 per cent range this year

Polling by the Institute found that 66 per cent of adults last October believed the level of the minimum wage to be too low (PA)

UK wage pressure is finally picking up, according to indications from the latest survey from the Bank of England's network of regional agents - data that is likely to bolster the confidence of the Threadneedle Street policymakers that they were right to raise interest rates last week.

The agents reported on Wednesday that expectations among firms surveyed were for wage rises to be "clustered" around 2.5 to 3.5 per cent in 2018, up from the 2 to 3 per cent range this year.

The Bank raised interest rates for the first time in a decade last week, from 0.25 per cent to 0.5 per cent, in order to rein in inflation, which hit 3 per cent in September.

The move was criticised by some economists who argued that current rates of inflation were almost entirely a result of the pound's slump in the wake of the Brexit vote and noted an absence of any visible upward pressure yet on wages in the official data.

Two members of the Monetary Policy Committee - Jon Cunliffe and Dave Ramsden - also voted against tightening monetary policy on this basis.

But the latest agents' report will likely be seen as a confirmation by rest of the nine-person MPC that they were correct to raise the cost of borrowing.

In further intimations of tightness in the UK labour market, which may support pay growth, the agents reported that firms' recruitment difficulties had increased and were now above normal.

A report from the Recruitment and Employment Confederation, published separately on Wednesday, also pointed to some pay pressures, with starting salaries rising in October at the second quickest rate since November 2015, and also increasing shortages in the availability of permanent and temporary workers.

Nominal average weekly earnings rose at an annual rate of 2.2 per cent in the three months to August, according to the Office for National Statistics, still down on the rates seen in late 2016 and well below the pre-financial crisis growth rates of more than 4 per cent.

Combined with 3 per cent inflation, real wages are falling.

In its latest Inflation Report the Bank projected average wage growth to pick up to 3 per cent next year, up from 2.25 per cent in 2017.

The Bank's agents' report was conducted between August and mid-October.

It also signalled continued weakness in business investment, with firms citing economic uncertainty stemming from Brexit.