MUFG provides an analysis of the potential actions by the Bank of England (BoE) in light of recent labor data from the UK, which indicates a significant surge in wage growth.

Key Takeaways:

1. Current Situation:
   • The UK's labor data for the last three months showed wage growth figures that exceeded expectations. The year-over-year wage growth rate for this period jumped from an adjusted 7.2% to 8.2%, surpassing the predicted 7.4%. Even when bonuses are excluded, the wage growth rate accelerated from 7.5% to 7.8%, again outpacing the anticipated 7.4%.
2. Impact on the Bank of England:
   • These robust wage growth figures might cause concern for the BoE, especially considering the implications for inflationary pressures.
   • Despite the strong wage growth figures, MUFG believes that the BoE is likely to maintain its course, leaning towards a 25 basis points (bps) rate hike in their upcoming September meeting.
3. Future Data Releases:
   • Another labor report will be released before the BoE's September meeting. This means the BoE will have an additional set of data to consider in its decision-making process.
   • It's also worth noting that the Consumer Price Index (CPI) data, a key measure of inflation, will be released soon. This might restrain any drastic moves in yields, despite the strong labor data.

Conclusion:

MUFG believes that, despite the surge in wage growth in the UK, the BoE is likely to maintain a steady approach, leaning towards a 25bps rate hike in September. While the strong wage growth figures add to the argument for a more aggressive rate hike, oscillating between 25bps and 50bps rate hikes could be perceived as inconsistent policymaking. The upcoming release of the CPI data may further inform the BoE's decisions and market reactions.