Bank of England Base rate & other news

[dsc]

What's going to happen when low skilled work pays nearly as much as moderately skilled work? There are lot of moderately skilled workers on salaries around £25k, especially in lower COL areas.

24.6% increase in 2 years is crazy, most people have seen no where near that.

Well minimum wage increases should theoretically drive all salaries up as the "base" goes up, but I've seen so many salaries pretty much stay still for the last 5 years that I definitely wouldn't bet on it.

It's a heck of an inflationary boost imho and fighting fire with petrol, but it's easy to say when not on minimum wage and not struggling. Absolutely no idea how to solve these sort of issues, which is why it's so tulip to be in recesion with high inflation and high interest rates...

[JustKeepSwimming]

Did read somewhere that NMW to median income has narrowed. Low pay commission had a 'target' of 60%, which they reached 2020~, which would imply that historically it was somewhat below 60%. I think now it's at like 66%. The tide definitely isn't raising all boats equally.

We also forgot about pensions! They are getting an above inflation increase too, 8.5%.

[Protagoras]

Well minimum wage increases should theoretically drive all salaries up as the "base" goes up ...

Why should this be the case?
Absent monopsony, the price of workers is set by the supply and demand for workers [of a given skill level], at least in theory.

The fact that the government requires some people to be paid more than their market value doesn’t alter this; rather it creates a floor price for workers. There may be an argument that increases in minimum wage suppresses labour demand.

Historically, labour organisations were able to persuade employers that differentials needed to be maintained between worker skill levels. Government policy appears set to continue to narrow the gap.

[dsc]

Why should this be the case?
Absent monopsony, the price of workers is set by the supply and demand for workers [of a given skill level], at least in theory.

The fact that the government requires some people to be paid more than their market value doesn’t alter this; rather it creates a floor price for workers. There may be an argument that increases in minimum wage suppresses labour demand.

Historically, labour organisations were able to persuade employers that differentials needed to be maintained between worker skill levels. Government policy appears set to continue to narrow the gap.

Comparison I'd say, if you have workers who were earning above minimum wage for a particular job that was paying more as it wasn't "minimal" and are now very close to minimum wage due to minimum wage going up, they might as well leave and go do an easier job somewhere for minimum wage. Or they will ask for a raise. Really depends on the market conditions for that particular job type. It also adds on to the pressure of small businesses who have a fair amount of workers on minimum wage, suddenly they all get a pay rise and it either eats into the profits or the cost of product / services goes up.

What you mentioned at the end is very important imho, gov policy is now fecking up the diffs between different salary levels given based on skillset and squashes the incentive to try harder to upskill to earn more. Unless of course the previously mentioned wage increases happen across the board (to a certain extent of course, it's not like a CEO will get a pay rise because NMW went up).

[Martin@AS Financial]

BoE's Bailey says getting inflation to 2% will be 'hard work'


Couple of interesting points in this report. Firstly bailey has re-iterated it is too soon to start talking about a base rate cut. Secondly, financial markets are currently fully pricing a first rate cut by the BOE in September 24.

https://www.reuters.com/markets/euro...rk-2023-11-27/

[JustKeepSwimming]

BoE's Bailey says getting inflation to 2% will be 'hard work'


Couple of interesting points in this report. Firstly bailey has re-iterated it is too soon to start talking about a base rate cut. Secondly, financial markets are currently fully pricing a first rate cut by the BOE in September 24.

https://www.reuters.com/markets/euro...rk-2023-11-27/

Having spoken to some mates I think there is a broad misunderstanding on rate cuts. Lot of people seem fixated on when the cut will happen and completely oblivious to how shallow the cuts are likely to be. Ie, first cut in 2024Q3 and thinking back to 'normal' by 2025Q2. Market seems to be predicting 3 year slow slide from 5.25% in mid 2024 to 3.75% in mid 2027.

[northernladuk]

So I assume slim chance of interest rates coming down before Feb then

[Martin@AS Financial]

So I assume slim chance of interest rates coming down before Feb then

It's difficult to say but I would be surprised if they do especially if we see an increase in inflation due to Christmas spending and potential tax cuts.

[northernladuk]

It's difficult to say but I would be surprised if they do especially if we see an increase in inflation due to Christmas spending and potential tax cuts.

Actually. I can tell you when the rates will drop. It will be the day after I finalise my fixed term mortgage ahead of February

[Martin@AS Financial]

Actually. I can tell you when the rates will drop. It will be the day after I finalise my fixed term mortgage ahead of February

The good news is that mortgage interest rates are coming down on a daily basis. What I suspect will happen is that we may see a slight increase shortly as banks look to stem the flow of business coming in over the Christmas period when they are operating with skeleton staff levels.

A February end date will hopefully will work out in your favor as banks traditionally have new annual lending targets to hit which will fingers crossed, mean lower mortgage rates as they compete for business.