Data released today revealed that private sector pay had slowed to 4.2% in September and unemployment had risen to 5%, the highest level outside of the pandemic.
Industry commentators are now predicting that the central bank will lower the base rate and ease monetary policy.
A base rate cut to boost the economy
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said private sector pay was a “key metric” for the Monetary Policy Committee’s (MPC’s) decision, and this was below forecasts.
He said markets were now pricing in a “73% chance of a December rate cut, as the case for policy easing gains traction”.
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Kevin Brown, savings expert at Scottish Friendly, said: “With inflation seemingly past its peak and wage growth continuing to ease, the odds of a pre-Christmas rate cut from the Bank of England are rising fast.
“Wage growth has been a crucial part of the inflation puzzle, and the bank has been reluctant to pull the trigger on another rate cut until it saw signs that it was cooling. Now that this is happening, it removes one of the biggest barriers to reducing borrowing costs.”
He said growth was “hard to find” and the jobs market looked “bleak”, which could lead the bank to decide if now was the time to “give the economy a lift”.
Richard Carter, head of fixed interest research at Quilter Cheviot, said a base rate cut could be an “early Christmas present”, noting that the MPC voted on a “tight split” of 5:4 at the last meeting, with governor Andrew Bailey’s vote “erring on the side of caution”.
He added: “Any further signs of easing in the next labour market print could sway a few more on the committee to cut on 18 December.”
Carter continued: “With the Chancellor’s Budget now just two weeks away, many businesses will have shelved any major hiring plans. Having already faced a significant rise in National Insurance costs earlier in the year, they will likely be nervous to make any real commitments until they know whether further costs are heading their way.
“The BoE will have time to assess the market’s reaction to the Budget, and will receive another labour market print prior to its next interest rate decision. While today’s figures make a rate cut appear slightly more nailed on, much could still change in the coming weeks.”
