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Newsflow following Bailey's comments focuses on higher wages

SHORT-STERLING
  • The news coverage this morning is all skewing in favour of higher Bank of England rates.
  • We have covered Governor Bailey's comments earlier in detail, but wages are also making headlines in the UK today.
  • The Political Editor of the Daily Mail, Jason Groves, tweeted a couple of hours ago that the Royal College of Nursing will ballot members next month over industrial action in relation to pay. The RCN is still said to be seeking a 12.5% pay rise, while the government is offering 3%. Nurses on strike as the NHS has record waiting lists and approaches the winter flu season (and with the severity of the seasonal impact on Covid-19 still not quite known) would be a PR disaster for the government. Particularly after Boris Johnson's recent higher wage, higher productivity comments.
  • Second, the BBC is reporting that Amazon is offering sign on bonuses of up to £3,000 in order to recruit staff ahead of the holiday season in some locations (up from £1,000 bonuses in August).
  • Underlying wages are already picking up with last week's labour market report noting that the ONS has revised up its estimate of underlying regular earnings growth from 3.6-5.1% to 4.1-5.6%.
  • These headlines about potential wage rises and bonus payments will be of particular interest to the Bank of England who, as Governor Bailey pointed out, are very focused on medium-term inflation expectations at present. If wages pick up, then so will inflation expectations.
  • These moves have seen a further sell-off in the front end of short sterling and an inversion of the curve is even more apparent looking at the chart now. Either the market will reprice the Greens/Blues over coming days, or it is pricing in a policy mistake. Or, more likely in our view, the Whites/Reds moves are overdone and will show some retracement in the coming sessions.

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