Key Points

  • U.K. wage growth records have sent fear down the spines of investors as they digest the possibility of a longer-term wild inflation
  • The rise in wages shows signs of inflation embedding, which means more monetary policies are needed over time.

U.K. wage growth has shaken the eurozone markets as the country battles wild inflation rates. Investors are digesting the report, which shows inflation could run wild for a little longer.

U.K. wage growth haunts the struggling economy 

Economists now fear that the U.K. economy will keep being in trouble following a strong wage growth report. The report shows that U.K. wages have risen to a joint-record high in the three months ending May.

Price rises and wage growth is always negative in an economy struggling to fight inflation as it signifies embedding inflation. Embedded inflation happens when you see inflation expectations over the medium term rise to inconsistent levels. Embedded inflation arose in the 1970s when high inflation persisted for years, necessitating multi-year wage agreement changes.

As such, the sharp rise in U.K. wage growth is a negative factor in the battle against inflation. The country is also caught in other financial issues from inflations like high mortgages, almost sinking the housing sector. Over 2 million homes cannot afford to pay their mortgages on time and have defaulted. 

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