Inflation busting wage rises “threaten higher interest rates for millions” | Personal Finance | Finance
High Street banking giant HSBC has predicted Labour plans to raise the minimum wage could lead to interest rates being higher in the long term.
Separately, City experts believe Taylor Swift’s 10 UK concerts in June could have driven up inflation fractionally due to higher hotel and ticket prices.
Economists at HSBC suggest that increases in pay are keeping prices and inflation higher than would otherwise be the case.
As a result, they suggest the Monetary Policy Committee of the Bank of England will keep the base interest rate higher.
The MPC has come under pressure to cut the base rate from its current 16 year high of 5.25 percent. Many analysts predicted a cut would come in June and now August, however HSBC suggests any reduction could now be delayed until November.
Money markets currently indicate there is now only a 50 percent chance of a rate cut when MPC policymakers meet next month.
HSBC economist Liz Martins wrote in a note to clients: “The upcoming decisions are likely to be ‘finely balanced’.
“We see wage growth and inflation remaining sticky, particularly if Labour’s plans include another sizeable hike to the National Living Wage in April 2025.”
Separately, some economists believe the Bank’s MPC will have to take account of a temporary boost to prices caused by the Taylor Swift’s tour.
Paul Dales, chief UK economist at Capital Economics, told Bloomberg: “I’ve been quite cautious when it comes to cultural services inflation and also restaurants and hotels inflation.
“I’ve popped in a little bit of upside from what might be some kind of Taylor Swift effect.”
Last month statisticians in Sweden said that the arrival of Swift had boosted core inflation unexpectedly for the first time in more than a year. Beyonce’s tour was blamed for a similar effect in the country last year.
Robert Wood, chief UK economist at Pantheon Macroeconomics, increased his accommodation price inflation prediction to a 0.4 percent month-on-month gain because live music events, including Swift’s tour.
