Interest Rates - new doubt that the Bank of England w...

The yo-yo economic news is now casting doubt on whether the Bank of England will cut base rate as quickly as many want.

Pay growth, excluding bonuses, fell sharply from 7.3 to 6.6 per cent in the three months to November while the number of vacancies dipped for the 18th time in a row.

Retailers have reported the sharpest fall in vacancies despite the sector heading towards the key Christmas trading period while many recruitment companies have recently warned that the jobs market was slowing.

Between October and December, the estimated number of vacancies in the UK fell by 49,000 to 934,000, according to the Office for National Statistics - although vacancies still remain above levels seen before the pandemic.

Analysts say that the Bank of England will look closely at wage growth now outpacing price rises - it wants to avoid an interest rate cut fuelling inflation, which is at 3.9 per cent and remains almost double the Bank's official 2.0 per cent target.

Derrick Dunne, chief executive of YOU Asset Management, says: “Wage growth remains well above the current rate of inflation, while there are still more than 900,000 unfilled job vacancies. Therefore, the Bank of England will be unlikely to pull the trigger on interest rate cuts until there are signs that wage growth has cooled even further. Markets are increasingly confident that will happen this year, so it pays for investors to prepare now for an environment when inflation is lower and interest rates are once again falling, and seek financial advice where needed.”

And Nicholas Hyett, investment manager at Wealth Club, comments: “While there remains uncertainty about the quality of UK labour data, it looks like the Labour market continues a long slow easing which has seen 18 consecutive quarters of falling job vacancies - the longest run on record … However, wage growth remains above inflation. That's good news for workers, but together with rising employment may put the Bank of England off cutting interest rates any time soon. If the economy can function with interest rates at their current level, why cut? That would bode ill for investors - who have bet big on rates falling this year - and could see share and bond prices fall if rate cuts don't come through as expected.”

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Robert Brown
17 January 2024 11:22 AM

As Simon rightly says, inflation has been due to external world events and not out of control domestic spending.

High interest rates have not contributed at all to reducing inflation, just allowed the big banks to fleece its customers and break the stranglehold of low interest rates which helped customers but hindered growth in bank profits and share prices.

In any case a change from 3.9% to 4% is not statistically significant and should be regarded as no change evident,, not as an increase and excuse not to cut interest rates quickly.

Matthew Payne
17 January 2024 13:25 PM

Its not signficant at all, core inflation remains static, household costs dropped and the real influencer in the tiny rise was Xmas booze and fags, and who is surprised by that after the year we have had. Ill put a pack of silk cut on a drop next month.