Towards the end of 2023, wages (excluding bonuses) increased by 6.2% in Britain. Despite the concerns of the economy entering a shallow recession, this is only a slight decline from 6.7% growth in the previous quarter. It can be attributed to the labor market remaining tight posing challenges for businesses to find and retain staff. The Bank of England (BoE) faces a dilemma as it fears pay growth could be higher than the inflation, which could make it harder to reach its target of keeping inflation around 2%.

The conflicting signals from the labor market have led to disagreements within the BoE’s Monetary Policy Committee, with two members advocating for rate hikes, one for a cut, and six for maintaining rates. There is an uncertainity regarding the inerest rate cuts, indicating uncertainty about the future economic trajectory. Even though there are fewer job openings and mixed signals from the job market, the unemployment rate dropped to 3.8%, and employment rose by 72,000. However, a potential implication could be British families experiencing a decrease in their living standards, which could put pressure on Prime Minister Rishi Sunak before the next national election in late 2024.