BoE's Greene Warns Wage Growth May Hold Near 3.5%

Megan Greene, a member of the Bank of England's Monetary Policy Committee, says UK wage growth could settle closer to 3.5% than 3% over the coming year, leaving less room for the latest energy shock to fade without adding to domestic inflation. Her assessment rests partly on a gap between the pay measure that draws most attention and a broader set of payroll and business indicators.

In a speech published on 20 October, Greene argued that private-sector regular average weekly earnings, or AWE, may be giving an artificially low reading of wage pressure. That matters for interest rates because pay growth can keep services prices rising after an external energy-price jump. Greene favours leaning against that risk before it becomes entrenched. Her speech states that these are her views, not necessarily those of the Bank or the committee.

The MPC held Bank Rate at 3.75% in September by six votes to three. Greene was among the three members who preferred an increase to 4%. The next scheduled rate decision is 5 November. The speech does not change the rate or establish how other members will vote.

Why the pay measures differ

The official AWE series put private-sector regular pay growth at 3.0% in the three months to August, Greene said. A Bank calculation based on HMRC's payroll data put growth in median private-sector pay at 4.4% in September. Those figures are useful signals, but they are not directly interchangeable: AWE is a survey-based mean that excludes bonuses, while payroll data cover a different population and include flexible pay.

Greene examined the differences rather than treating the higher figure as a simple correction. Comparing mean pay measures for August, the payroll-based figure was 5%, against AWE's 3%. Changes in the mix of jobs across industries, pay growth within industries and bonuses all contributed to the two-percentage-point gap. In the speech's adjusted comparison, which holds industry weights constant and removes an estimate of flexible pay from the payroll measure, AWE implies 3.4% and payroll data 4.5%. Both remain above the rate Greene judges consistent with the 2% inflation target.

These are analytical estimates, not a replacement official wage series. Greene puts somewhat more weight on payroll data when the two disagree because they draw on employers' administrative records and include smaller firms that the AWE survey must estimate. She also acknowledges that the Labour Force Survey, which offers another check on how employment is shifting between sectors, has weaknesses of its own. The point is that a single headline pay reading may give policymakers false reassurance about the amount of slack in the economy.

Looking towards next year's settlements

The forward-looking evidence is not uniformly benign either. In the three months to September, firms in the Bank's Decision Maker Panel expected their own wage growth over the following year to level off at 3.4%. Greene said the Bank's regional agents were hearing that pay settlements for 2027 may be similar to, or only slightly below, those in 2026. Pay rises advertised to new recruits, measured by Indeed's wage tracker, were running at around 4% in August and had shown little further easing since the start of the year.

Each measure captures a different part of the labour market. Settlements describe basic pay agreed for existing workers. The business panel asks firms what they expect to pay. Job advertisements show offers to potential recruits rather than what the whole workforce receives. Their shared message, in Greene's reading, is that wage disinflation may be stalling. She expects growth to stabilise nearer 3.5% than 3%, with risks tilted higher.

The timing worries her. Most 2027 pay settlements will be agreed between January and April, when she expects inflation to be above 4%. If employees seek compensation for higher living costs and firms pass those increases on, a shock that started in energy could spread into domestic prices. That is a risk scenario, not evidence that such a wage-price cycle has already taken hold. The September MPC minutes said there had been little evidence so far of material second-round effects in pay and pricing, although the risk was growing as high energy prices persisted.

Greene also questioned how much spare capacity the labour market can provide as a buffer. She cited unemployment easing from 5.2% in the three months to January to 4.7% in August, signs of firmer underlying employment, and a UK economy that had held up better than some earlier forecasts. She said it was not obvious to her that the current policy stance was meaningfully restrictive. Those are judgements from one MPC member; they do not mean the committee has agreed that the labour market is tight or decided to raise rates.

For households and businesses, the immediate consequence is uncertainty over the path of borrowing costs. September's majority chose to hold at 3.75%, while the three dissenters wanted to act sooner against persistent inflation. Greene's new wage analysis supplies a more detailed case for that minority position. It leaves the November decision dependent on the evidence available to the full committee, particularly whether pay, employment and price data confirm that wage pressure is settling or show a renewed rise.