Two-year swap rates to fall as base rate held again – Maddox

Two-year swap rates to fall as base rate held again – Maddox

The decision was approved by a majority of 6-3, with the dissenting members supporting a 0.25 per cent increase to 5.5 per cent. This is the third pause in the BoE’s hiking cycle and comes after fourteen consecutive rises from 0.1 per cent in December 2021.  Meanwhile, swap rates have continued to tighten.

The bank’s current rate remains its highest in 15 years. The BoE maintained their cautious stance and tightening bias, with markets not anticipating any cuts to the base rate until at least May next year, contrasting sharply with the Federal Reserve opening the door to interest rate cuts in the new year. Sterling rose against the dollar following the announcement.  


The changing economic landscape 

The latest UK inflation data for the 12 months to October reported a fall to 4.6 per cent, largely attributed to declining energy prices, where the annual rate was the lowest since records began in 1950. The second largest downward contribution was from food and non-alcoholic beverages, which reached their lowest rate since June last year.  

Core prices, however, were up 0.1 per cent month-on-month (MoM) and services inflation fell more softly than expected at -0.3 per cent MoM. Inflation is anticipated to fall more modestly in the November release, with market participants estimating a 0.2 per cent decline. In the BoE’s modal projection, inflation is expected to return to the two per cent target by the end of 2025. 

UK GDP was flat in Q3 of this year, although MoM saw a fall of 0.3 per cent in October, with services, production, and the construction sector all experiencing a drop in output. GDP is now expected to remain flat in Q4 rather than the slight growth of 0.1 per cent previously anticipated.  

Based on the latest surveys of bank staff, GDP is expected to see growth of c.0.25 per cent in 2024, weaker than previous predictions. 


Falling swap rates 

With inflation falling and the BoE rate believed to have reached the peak of the hiking cycle, swap rates have continued to tighten.  

As a result, we are seeing lenders reducing their mortgage rates more regularly. For an average 75 per cent loan to value (LTV) mortgage, high street lenders are now offering two-year fixed rate products from 4.77 per cent and five-year fixed rate products from 4.58 per cent, the lowest rates we have seen since May of this year when they increased dramatically.  

The UK labour market continues to show signs of weakening, with the number of vacancies decreasing on the quarter for the 17th consecutive period, the longest continuous decline ever recorded. Growth in regular pay, not including bonuses, was up by 7.3 per cent in the three months to October, a fall from the recent highs we have seen.  

Unemployment, however, was largely unchanged on the quarter at 4.2 per cent. 



  Forecast in rates 
Effective rate  One month’s time  Three months’ time  Six months’ time  12 months’ time  Two years’ time  Three years’ time 
Bank of England base rate*  5.25 per cent  5.14 per cent  4.84 per cent  3.91 per cent  3.34 per cent  3.21 per cent 
Two-year fixed rate**  4.20 per cent  4.05 per cent  3.83 per cent  3.53 per cent  3.27 per cent  3.18 per cent 
Three-year fixed rate**  3.91 per cent  3.80 per cent  3.65 per cent  3.42 per cent  3.23 per cent  3.18 per cent 
Five-year fixed rate**  3.62 per cent  3.55 per cent  3.46 per cent  3.32 per cent  3.22 per cent  3.22 per cent 
10-year fixed rate**  3.49 per cent  3.47 per cent  3.43 per cent  3.39 per cent  3.38 per cent  3.42 per cent 

* Using OIS Curve  

**Based on the swap curve 


The two-year swap rate is expected to fall far more quickly than previously expected, by just over 100 basis points (bps) over the next three years, with the curve flattening. The three and five-year swap rates are predicted to fall at a slower rate and stabilise at around 3.2 per cent.  

This suggests that the market believes rates will stabilise for an extended period.  

The 10-year swap rate is expected to stay very flat over the next year, decreasing by only 7bps over the next three years. 


UK securitisation market 

The UK securitisation market finished the year busier than usual throughout November with eight transactions pricing from four specialist lenders, two prime lenders, a legacy transaction, and one from Kensington’s own programme, Gemgarto 2023-1. The transactions all experienced strong engagement from investors, especially in the mezzanine tranches, with significant tightening from initial price talks (IPTs) and good coverage levels.  

Kensington’s Gemgarto 2023-1 transaction, consisting of owner occupied, high LTV loans, was the first transaction from the issuer in over two years. The reception from markets was strong from the beginning of the process, across all offered tranches, resulting in high coverage levels for the Class B to E notes, respectively 5.1x, 6.8x, 5.0x, and 2.9x oversubscribed at IPTs. Coverage reached on average 4.3x at final terms, and pricing tightened on average by 40bps from IPTs.  

The final levels across mezzanine notes ended up inside all recent UK residential mortgage-backed securitisation (RMBS) mezzanine notes placed by UK issuers this year. 

In 2023, there has been just over £16.5bn of UK RMBS paper placed into the market compared to approximately £22bn at this time last year, although c.£12bn of that was legacy paper. 

‘Far too early’ for interest rate cuts, says Bank of England Governor Bailey

‘Far too early’ for interest rate cuts, says Bank of England Governor Bailey

In a speech on food inflation, Bailey suggested that UK interest rates, which are currently at 5.25 per cent, after being held by the Monetary Policy Committee (MPC) this month, would need to remain high despite falling inflation levels.

This week the annual inflation rate fell to 4.6 per cent in October, from 6.7 per cent in September. This is the lowest level seen in two years but although he recognised this as good news, the Governor said there was a long way to go until it was back at the two per cent target. He also said a further rise to interest rates was not completely off the cards.

He said: “It is too soon to declare victory. We still have a long way to go. Interest rates will have to stay high enough for long enough to make sure we get all the way back to the two per cent target.

“Monetary policy is currently restrictive in the sense that, if we maintain this stance for long enough, we will squeeze inflation out of the system. That is what we will do. This also means being on watch for further signs of inflation persistence that may require interest rates to rise again.”

Food price increases a ‘global phenomenon’

In terms of food price inflation, which could keep overall inflation elevated and thus push base rate higher, the central bank has forecast that it could fall to three per cent in March 2024, from 10.1 per cent in October. But Bailey noted that many in the agricultural industry believe food price inflation will remain elevated in the very short term.

Bailey said rising food prices had been a ‘global phenomenon’ caused by several different factors. These include the Russian invasion of Ukraine, which caused major supply chain disruptions and a rise in food prices, the pandemic, and poor harvests caused by global warming.

But Bailey said many in the food industry and the government had expected consumer price inflation to fall at an earlier point.

By the end of 2022, he said agricultural prices had started to fall and supermarkets at the time said prices had peaked. Yet, at the same time, farmers said they were still facing higher costs of energy, fuel, fertiliser, feed, haulage and labour. Many of these prices were set by fixed-term contracts and meant that despite global agriculture costs falling, the price for consumers remained high for much of 2023.

He said: “The farmers appear to have been right. When it comes to the outlook for food prices, a sizeable chunk of the consumer price index, there has been no more reliable source than British farmers.”

ONS records first annual house price fall since 2012

ONS records first annual house price fall since 2012

The slight fall in house prices, which compares to a 0.8 per cent annual rise in August, means the average price tag of a UK home stands at £291,000.

UK house price annual inflation has been generally slowing since July 2022, when annual inflation was 13.8 per cent.

On a monthly basis, house prices decreased by 0.5 per cent in September following a month-on-month increase of 0.7 per cent in August.

Both Nationwide and Halifax recently reported deeper price falls for the year to October of 3.3 per cent and 3.2 per cent respectively but recorded slight month-on-month rises.


Sales numbers under more pressure than prices

Housing market experts say that house price falls, while expected to continue, will be modest due to the affordability restrictions put in place after the financial crisis to stop homeowners from overborrowing.

Prices are also being buoyed by rises in income. Consequently, it is the number of sales that are expected to decline, estimated by Zoopla to be 1m this year against 1.5m in 2022, rather than a steep fall in house prices.

Nick Leeming, chairman of Jackson-Stops, said: “The relatively modest change in house prices in today’s ONS figures reflect a market driven by varying supply levels and increasingly needs-based buyers. Whilst house prices are continuing to adjust and settle into their new normal, it is clear there is a powerful undercurrent of resilience that keeps the market steady.

“Though the market is largely balanced, with wider analysis suggesting that the UK housing market will outperform forecasts this year, the pendulum continues to swing drastically across different areas of the country.”


UK’s patchwork performance

According to the estate agent, key commuter towns in October such as Oxted and smaller cities such as Norwich, Chelmsford and Truro saw an “unwavering level of interest” from buyers which outweighs the number of properties available to buy. This imbalance is helping to insulate homeowners in those areas from house price falls, said the agent.

The recent stabilisation of the Bank of England base rate, held at 5.25 per cent for the second month in a row, and a reduction in the pace of inflation to 4.6 per cent in October from 6.7 per cent in September are positive factors for the housing market over the longer term, says Karen Noye, mortgage expert at Quilter.

“This morning’s lower inflation figure spells good news for homeowners at least over the long term as lower inflation should hopefully mean that the Bank of England does not have to raise interest rates much further.

“However, the prevailing view is that interest rates will stay higher for longer causing the slump in buyer demand to be prolonged. At present, this has been coupled with sellers unwilling to put their properties on the market meaning that there does remain limited stock stopping any huge price crashes.

“But as more and more people find that their fixed rate mortgage deals coming to an end, push may come to shove and properties will have to be listed. A surge in stock at a time of limited demand will be bound to take the froth out of what has been a turbocharged market over the last few years.”

Noye added that when the Bank felt confident enough to start reducing interest rates we should see confidence return to the market.


Bank likely to raise base rate to 5.5 per cent before calling a halt – IMF

Bank likely to raise base rate to 5.5 per cent before calling a halt – IMF

Speaking at a press conference in Morocco to launch the World Economic Outlook, the IMF said the UK was on track to have the slowest growing economy among the G7 countries next year.

The G7 countries include: Canada, France, Germany, Italy, the United States, Japan and the UK.

The IMF’s chief economic counsellor said that the UK had experience a “fairly sharp” slowdown in growth this year compared to 2022. Growth has slowed from around 4.1 per cent to 0.5 per cent.

Growth is forecast to remain weak at 0.6 per cent into 2024. This compares to 0.9 per cent growth in Germany and 1.3 per cent growth expected in France next year.

The IMF’s projections of “low growth performance” in the UK this year and next is likely to lead to another round of interest rate hikes peaking at 5.5 per cent.

The Bank of England held the base rate at 5.25 per cent last month, causing optimism in the financial markets that interest rates had already reached their peak.

Pierre-Olivier Gourinchas, the IMF’s economic counsellor, said: “The general perspective here on the UK is we have fairly subdued growth. We have falling momentum. We have a labour market that is cooling. But inflation remains quite persistent. And that is going to require monetary policy to remain tight for a little while longer, into next year.”

Annual house prices fall 5.3 per cent in September – Nationwide

Annual house prices fall 5.3 per cent in September – Nationwide

According to the Nationwide House Price Index, around £14,500 was shaved off the average property value, now £257,808, over the last 12 months with all regions recording annual house price falls in quarter three.

The South West was the weakest performing region where house prices fell by 6.3 per cent in the year to September.

Out of the UK’s countries, Welsh homeowners experienced the biggest fall in annual prices at 5.4 per cent with Northern Irish values falling the least at 1.8 per cent.

A continuing trend is that more buyers are looking at smaller, less expensive properties such as flats and apartments. Flats, says Nationwide, have increased in value at a much slower pace since the start of the pandemic. Flats have risen by around 12 per cent since Q1 2020 compared to semi-detached properties which rose by 21 per cent and detached homes which increased by 24 per cent.

The September fall in annual prices follows last week’s news that mortgage approvals for purchases had fallen to their lowest level of six months while remortgages dropped to their lowest point since 2012.


‘Housing market remains weak’

Robert Gardner, Nationwide’s chief economist, said: “Housing market activity remains weak, with just 45,400 mortgages approved for house purchase in August, around 30 per cent below the monthly average prevailing in 2019 before the pandemic struck. This relatively subdued picture is not surprising given the more challenging picture for housing affordability.

“For example, someone earning an average income and purchasing the typical first-time buyer home with a 20 per cent deposit would spend 38 per cent of their take home pay on their monthly mortgage payment – well above the long-run average of 29 per cent.”

Gardner added that following the Bank of England’s decision to hold the base rate at 5.25 per cent in September, investors have marked down their expectations for its future path in recent months amid signs that underlying inflation pressures in the UK economy are finally easing, and with labour market conditions softening. Inflation is currently 6.7 per cent.

He added: “This in turn has put downward pressure on longer-term interest rates which underpin fixed rate mortgage pricing. If sustained, this will ease some of the pressure on those remortgaging or looking to buy a home.”


Capital Economics: ‘House prices will continue to fall’

Research group Capital Economics says that although house prices stabilised between August and September, it predicts that the pause in monthly falls is unlikely to mark the market’s trough.

“Leading indicators of house prices remain downbeat, so we suspect house price falls will resume in the coming months.

“Unchanged house prices in September bettered the consensus expectation of a third consecutive monthly decline of 0.4 per cent month on month. While [Nationwide’s index] hints that prices are proving more resilient than we anticipated, it is not unusual for house price falls to be uneven from month to month.”

Tomer Aboody, director of property lender MT Finance, added: “As mortgage rates fluctuate on a daily basis, buyers and sellers are uncertain as to where the market is, which makes for instability and lower transaction volumes.

“With the Bank of England holding rates in September, confidence may start creeping back in, especially if there is another hold in rates at the next meeting. Mortgages are slightly cheaper, which will hopefully encourage buyers and sellers to act in the final quarter.”

Halifax to refresh mortgage range with sub-five per cent deals on way

Halifax to refresh mortgage range with sub-five per cent deals on way

From Monday, the bank is refreshing its purchase, remortgage and product transfer rates.

Its reductions mean that some borrowers will once again be offered a rate of less than five per cent.

Borrowers buying a home will benefit from rate cuts of up to 23 basis points (bps) while those remortgaging will be able to access deals that are 36 bps cheaper.

Highlights from the purchase rate cuts include;

Remortgage rate cuts include:

Rate reductions on product transfers and further allowances have not yet been released.

Property sales fall by 16 per cent YOY – HMRC

Property sales fall by 16 per cent YOY – HMRC

Transactions reached 87,010 making August the third consecutive month to show a month-on-month increase in seasonally adjusted sales, according to HMRC.

This follows a month-on-month increase of six per cent and 0.3 per cent in June and July respectively.

Setting August 2020 aside when transactions were 85,050 in the year the pandemic began, last month’s transaction levels were the lowest since the beginning of the series in 2014.

Nick Leeming, chairman of Jackson-Stops, said: “At a topline view, residential transactions have continued to rise modestly over the summer months, showing signs of a market that has been quietly boosted by a period of relative stability and resilience for sellers.

“Whilst these figures are a snapshot of deals agreed likely six months ago or more, the lending market today looks more settled. The wider market hopes that the Bank of England’s recent decision to hold the base rate at 5.25 per cent represents the peak and will therefore offer a boost to the lending market.

“Mortgage rates and inflationary pressures naturally effect consumers appetite for debt in the shorter term, but the property market is not solely driven by financial decisions. Lifestyle and needs-based changes are a continually strong motivator of property purchases at all levels of the market. Often, the rules of supply and demand are taking precedent over macroeconomics.”

Tony Hall, head of business development, Saffron for Intermediaries, added: “It’s positive to see that property transactions in August have increased, especially when the summer is traditionally a slower time for the market. When combined with the fact that the Bank of England base rate hasn’t increased further, this may provide a much-needed boost to consumer sentiment.

“Swap rates are far less volatile now than earlier in the year, and many lenders have factored in future base rate rises. As a result, we’ve seen fixed rates being repriced downwards.

“However, we have seen a rise in gazundering – a process where a buyer lowers the offer made on a property just before the exchange of contracts. This is a rising concern in the industry which has resulted in some purchases falling through. This can happen when a buyer finds issues with the property during the surveying process. Reforms to the house buying process in England to introduce a home report, similar to the Scottish system, could be a suitable solution to this problem.”

Bank of England holds base rate at 5.25 per cent. Is this the last of the hikes?

Bank of England holds base rate at 5.25 per cent. Is this the last of the hikes?

The Bank’s Monetary Policy Committee (MPC) voted by a 5-4 majority to maintain the base rate at 5.25 per cent. Four members preferred to increase it by 0.25 percentage points to 5.5 per cent.

The decision was based on forecasts suggesting that CPI inflation was expected to return to the 2% target by Q2 2025, and following yesterday’s latest inflation data showing a fall from 7.9 per cent in June to 6.7 per cent in August – 0.4 percentage points below the MPC’s expectations given last month.

However, the MPC noted risks that modal inflation forecasts were “skewed to the upside”, reflecting the possibility that the second-round effects of external cost shocks on inflation in wages and domestic prices may take longer to unwind than they did to emerge.

The MPC report stated: “CPI inflation is expected to fall significantly further in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain elevated in the near term, with some potential month-to-month volatility.”

Indeed, annual private sector regular average weekly earnings growth increased to 8.1 per cent in the three months to July which is 0.8 percentage points above its August projection.

It added that spot oil prices have risen significantly, and UK GDP is estimated to have declined by 0.5 per cent in July. Elsewhere, there have been some further signs of a loosening in the labour market with a small rise in unemployment, although the market remains tight by historical standards.

What does this mean for borrowers?

Sarah Pennells, consumer finance specialist at Royal London, said: “After consecutive interest rate rises, this is a welcome pause for borrowers. Those on a tracker rate for their mortgage will doubtless be relieved that they will not see another rise in their repayment amounts.

“However, today’s decision by the Bank of England to leave the base rate at 5.25 per cent won’t help people whose current fixed rate mortgage is near its end, as they’re likely moving off a rate that was cheaper than the new fixed rate deals available. For some, these higher repayment amounts will be unaffordable or a huge stretch on their finances.”

Katie Brain, banking expert at business information and ratings firm Defaqto, noted that mortgage deals have become cheaper recently, with some fixed rate mortgage products falling below 5 per cent.

She noted that today, the best two-year fixed rate for a remortgage at 75 per cent LTV is 5.74 per cent with a £490 fee (First Direct) compared to the best rate on 1 September of 6.14 per cent with no fee.

The best five-year fixed rate is 4.99 per cent although there is a £1,495 fee (Yorkshire Building Society) compared to 5.23 per cent on 1 September with a fee of £1,395.

Meanwhile, Andrew Gall, head of savings and economics at the Building Societies Association, said for first-time buyers, the higher cost of a mortgage compared to two years ago, alongside the increased prices for energy, food and other items, “will have a considerable impact on what they can borrow”.

Gall said: “They may need to lower their ambitions about the property they would like to buy as they are unlikely to be able to borrow at the level they might have achieved before the Bank Rate started to rise in December 2021.”

Another two base rate hikes predicted for this year

Another two base rate hikes predicted for this year

The Bank of England monetary policy committee (MPC) will decide whether to increase the cost of borrowing again on 21 September.

The base rate currently stands at 5.25 per cent, the highest it has been since February 2008. The market is now expecting two more rate hikes to 5.75 per cent before the end of the year, while expectations are rising that mild recession is on the way.

The outlook for the economy

The closely watched Purchasing Managers Index reading – the flash UK composite PMI – came through at 47.9 this month and anything below 50 marks a contraction in the economy.

Susannah Streeter, head of money and markets at Hargreaves Lansdown, said: “This is the lowest level in two-and-a-half years so forecasts of where interest rates will end up have been ripped up and re-assessed. The market consensus is still for another rate hike in September to 5.5 per cent because wage growth came in so hot in July. There is a chance it could be the last in the cycle, but right now the market consensus is for two more rate hikes to 5.75 per cent before the end of the year, until there’s a pause.”

However, it should be noted that forecasts can change very quickly, and interest rate expectations may well be revised lower again if fresh data on the jobs market points to a further rise in unemployment.

The Bank of England has already warned that half of all businesses that have borrowed will struggle to pay their debts by the end of the year, up from 45 per cent last year. This could mean firms hold back from granting pay rises and taking on new staff, which is likely to have a dampening effect on wage growth.

What will happen to mortgage rates?

Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The PMI data has showed how worried business are about the outlook, and the market has immediately started pricing in two rises rather than three – and a lower peak.

“This isn’t going to make a major difference today to anyone on a variable rate mortgage, as these tend to rise and fall when the Bank of England moves the base rate. It’s likely to mean that the future feels a bit less daunting – because their rate is likely to be hiked less in the coming months. However, it’s still likely to be quite some time before we see these rates fall.”

The current outlook is good news for anyone looking for a new fixed rate deal, because these mortgages are based on the swaps market – where banks swap a variable rate for a fixed one.

Swap rates depend on rate expectations, so they’re likely to fall as expectations drop, and fixed rate mortgages may get cheaper.

Fixed rate mortgages have already come down slightly from the peak, with the average two-year fixed rate at 6.74 per cent and the average five-year rate at 6.22 per cent, compared to 6.85 per cent and 6.37 per cent respectively at the beginning of August, according to Moneyfacts.

Expectations for savings rates

Mark Hicks, head of active savings at Hargreaves Lansdown, said expectations of future rate rises have been somewhat tempered since the PMI data release.

“We were pricing in a base rate of 6 per cent by December 2023 before the release but expectations of the base rate reaching that have come off quite substantially.

“Nonetheless, the market is still pricing in at least two more rate rises by the end of the year. Whilst this is unlikely to affect savings rates at the front end of the curve in easy access, which tend to move more in line with base rate, this will add further pressure to banks reducing pricing in one-year fixed term deposits, a trend we have seen occurring over the past few weeks.

“Fixed term saving rates tend to move more in line with swap rates, which take into account future expectations of rate rises. If we continue to see future expectations of interest rate rises decrease this could well be the last chance for clients to fix their savings rates at this elevated level of 6 per cent.”

Record wage growth and sticky inflation could push Bank of England base rate beyond 5.5 per cent

Record wage growth and sticky inflation could push Bank of England base rate beyond 5.5 per cent

The current base rate of 5.25 per cent is the highest level seen since 2008 and any further hike will pile even more pressure onto borrowers who are already facing huge price rises amid the cost of living crisis.

The base rate has been rising in a bid to curb runaway inflation. But the rate of inflation has now started to slow – with the annual consumer prices index (CPI) inflation standing at 6.8 per cent in July, down from 7.9 per cent in the year to June.

John Glen, chief secretary to the Treasury, said the figure means the UK is now “on course to get to the two per cent target” by 2025.

But despite the fall in CPI, the figure is still historically high and needs to be seen in the context of stubborn core inflation, record wage inflation and surprisingly high growth figures.

Today’s drop in CPI means that for the first time since autumn 2021, prices are increasing less rapidly than wages. Total pay, including bonuses, rose by 8.2 per cent a year in the three months to June, according to the Office for National Statistics (ONS).

Ben Thompson, deputy CEO at Mortgage Advice Bureau, said: “While July’s inflation fall is a firm sign that the headline rate is moving in the right direction, salary rises have thrown up yet another conundrum for the BoE.

“Wages have grown at a record level to 7.8 per cent and are now higher than current inflation at 6.8 per cent. Inflation dropping back opens the door for the BoE to press pause on rate rises, but record wage growth keeps potential hikes firmly on the table.”

The wage jump was more than expected in June, and was boosted by a one-off payment to NHS workers. Regular pay, which excludes bonus payments, rose by 7.8 per cent in the quarter, the highest regular annual growth rate since comparable records began in 2001.

The number of vacancies in the UK jobs market fell 66,000 between May and July. However, there are still more than one million vacancies.

Improvements but more base rate rises on the way

Experts said the outlook was not improving rapidly enough to prevent further interest rate rise next month. The BoE has previously said interest rates won’t begin to fall until there is solid evidence that price rises are slowing and pay is stable.

Ruth Gregory, deputy chief UK economist at Capital Economics and Samuel Tombs, an economist with Pantheon Macroeconomics, are among several pundits predicting that the Monetary Policy Committee (MPC) will hike rates one more time to 5.5 per cent.

Tombs said: “The momentum in wage growth still is too strong for the committee to take a break just yet.”

Adam Oldfield, chief revenue officer at Phoebus Software, said: “Although it is in line with many predictions, it is good to see inflation come down below seven per cent. The hope was that it might get down to five per cent by the end of the year, but there may be a couple of factors that will have had an effect when we see next month’s figure.

“Prices at the petrol pumps have been going up this month which, along with rising wages, has the potential to push inflation up again next month. With this in mind the BoE is highly unlikely to veer away from its current path, and another base rate rise is likely to be on the horizon.”

Meanwhile, Sanjay Raja UK chief economist Deutsche Bank, predicts that base rate will end up at 5.75 per cent by the end of the year.

He said: “What does [wage growth] mean for the MPC? Bottom line: for the MPC, despite growth signs of cooling in the labour market, the strength of wage growth – and in  particular, private sector pay growth – will be worrying. Bear in mind, the MPC expected private sector regular pay to slip to 6.9 per cent year-on-year in Q3 2023 – this looks unlikely now.

“This should leave the prospect of a 50bps hike on the table for September with hawks like [MPC rate setters] [Jonathan] Mann and [Catherine] Haskel potentially calling for  bigger hikes in four weeks’ time. Ultimately, the wage data was one big reason why we thought, and continue to think that the MPC has some way to go with our terminal rate projection still at 5.75 per cent. Put differently, a pause – in our view –  remains at least a few months away.”