Hopes that interest rate cuts could begin by as soon as next summer were given a boost on Tuesday when latest official data showed wage growth subsiding more quickly than expected.
Latest figures from the Office for National Statistics (ONS) showed basic wages not including bonuses rose by an annual rate of 7.3 per cent in the August to October quarter. This was slightly less than forecast and down from a peak of 7.9 per cent in the summer. However, the ONS said the underlying rate could now be as low as 4.2 per cent.
City economists seized on the figures as evidence that two years of interest rate hikes from the Bank of England have finally taken the steam out of the once red hot labour market.
Ashley Webb, UK economist at City forecasters Capital Economics said: “The sharp fall in wage growth in October will probably further fuel investors’ expectations that interest rates could be cut as soon as the middle of next year, and leaves our forecast for rate cuts to start late in 2024 looking a bit more challenging.”
The Bank’s Monetary Policy Committee is still expected to leave rates at their current level of 5.25 per cent when it makes its decision on Thursday, but cuts are now being priced in for as early as June. Today’s figures also showed pay growth outstripped inflation at the fastest pace for more than two years, up by 1.2 per cent.
In further signs of a weakening UK jobs market, the ONS said the number of vacancies fell for the 17th month in a row, down by 45,000 in the three months to November to 949,000 — the longest period of decline on record. The rate of unemployment remained unchanged at 4.2 per cent. Chancellor Jeremy Hunt said: “It’s positive to see inflation continue to fall and real wages growing.”
