Ordinarily, the Bank of England (BoE) would prefer to look through the supply shock in energy and commodity markets that has helped push inflation in the UK to 9.0% year on year in April. But the strength of the labour market data is at odds with this idea. For the first time since records began, there are fewer people unemployed than there are job vacancies and the unemployment rate now sits at a nearly 50-year low. Workers are capitalising on their increased bargaining power to ask employers to raise pay to cope with higher living costs, with wage growth now running at 7.0%. As a result, we think the BoE will continue to cautiously raise interest rates, while keeping an eye on any signs that the labour market may be moderating.

UK labour market continues to tighten

%, wage growth is % change year on year