National living wage rise could mean stickier inflation, economists warn

The almost 10% rise in the UK minimum wage will be another obstacle for policy makers trying to get inflation to stay down at target levels but it could boost spending across the economy, according to some economists.

The increase, which was announced by the Chancellor Jeremy Hunt last November, will help nearly 3 million low-paid workers across the UK.It came amid a backdrop of rampant inflation, which had peaked at 11.1% before a slump over the past year, with higher interest rates helping to bring it back down to 3.4%.

However, others have suggested that the impact could be muted, with only around 4.9% of the UK workforce due to impacted by the increase. Nevertheless, the impending rise will raise questions for Bank of England’s Monetary Policy Committee as it assesses the inflation outlook and considers reducing interest rates from 5.25%.

“Assessing the effect of April’s large rise in the national living wage on broader pay growth offers another reason for inaction for the time being.”

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