Bank of England expected to leave interest rates on hold today, as wage growth slows – business live
Introduction: Bank of England expected to leave interest rates on hold
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Bank of England policymakers face a tricky situation this week when they met to set interest rates.
On the one hand, the economic picture is darkening – with UK GDP shrinking in January, the steel industry hit by US tariffs, and fears of a global trade war gripping the world economy. That’s could make the Bank consider lowering borrowing costs.
On the other hand, prices are rising faster than its target – with inflation running at 3% in January. That’s a compelling reason not to cut the cost of borrowing.
Faced with this situation, the City expects the Bank to leave policy unchanged at noon today.
The money markets indicate there’s just a 4% chance of a rate cut today, to 4.25%, and a 96% likelihood that Bank Rate is unchanged at 4.5% today.
Matthew Ryan, head of market strategy at global financial services firm Ebury, explains:
“On the one hand, the UK economy continues to trundle along at nothing more than a snail’s pace, hamstrung by acute trade uncertainties and fragile business confidence ahead of impending tax hikes.
“Yet, with most of the MPC appearing concerned about nagging upside risks to inflation, particularly stemming from sticky wage growth, we think that the hawks will get their way, with the communications to hint at only a gradual pace of cuts ahead.
The BoE last cut rates in February, when we were surprised that the previously hawkish. BoE policymaker Catherine Mann voted for a jumb reduction in rates.
There could be a similar split today, Ryan suggest:
The vote on rates appears highly unlikely to be unanimous, and we expect the two members that opted for a jumbo rate reduction last time out, Dhingra and Mann, to favour a 25bp cut on Thursday.
The decision comes at noon – before that, the Swiss and Norwegian central banks will make their interest rate announcements too, on a busy week for central bankers.
Last night, officials at the US Federal Reserve cut their US economic growth forecasts and raised projections for price growth as they kept interest rates on hold.
“Uncertainty around the economic outlook has increased,” the central bank said in a statement, as Donald Trump’s attempt to overhaul the global economy with sweeping tariffs sparks concern over inflation and growth.
The agenda
-
7am GMT: ONS releases latest UK labour market report
-
8.30am GMT: Swiss National Bank sets interest rates
-
8.30am GMT: Norway’s Riksbank sets interest rates
-
10am GMT: Eurozone construction output report for January
-
Noon: Bank of England rates decision
-
12.30pm: US weekly initial jobless claims data
-
12.30pm: Philly Fed business conditions index
-
2pm US existing home sales for February
Key events
Private sector pay growth outpaced earnings growth in the public sector over the winter.
Today’s labour market report shows that annual average regular earnings growth was 6.1% for the private sector in November-January – up from 5.5% in August-October.
But in the public sector, pay rose by 5.3% per year in the three months to January, up from 4.3% in the previous quarter.
The ONS reports:
The wholesaling, retailing, hotels and restaurants sector showed the strongest regular growth rate at 6.3%, followed by construction at 6.2%. The public sector and finance and business services had the lowest annual regular growth rate at 5.3%.
ONS: pay growth remains relatively strong
ONS director of economic statistics Liz McKeown has summed up today’s UK labour market report:
“Overall pay growth remains relatively strong, with pay growth high in both the public and private sectors, despite the latter slowing slightly in the latest period.
“The wider labour market picture is relatively unchanged, with the number of employees on payroll broadly flat in the latest period and with little growth seen over much of the last year.
“Unemployment, as measured by the Labour Force Survey, and the Claimant Count have both increased slightly in the latest periods, though caution continues to be advised with the survey estimates.
“Initial estimates show that the number of vacancies is little changed on the previous quarter, remaining just above pre-pandemic levels.”
Once you adjust for inflation, real regular pay rose by 3.2% over the last year while real total pay (incuding bonuses) increased by 3.1%.
Both real regular and total real annual growth were higher in the previous three-month period, when they were 3.4% and 3.5%, respectively, the ONS adds.
UK wage growth slows, a little
Ahead of the Bank of England interest rate announcement, we have a new healthcheck on Britain’s jobs market.
And it shows that wage growth has slowed slightly, while unemployment is a litte higher than a year ago.
The Office for National Statistics reports that total pay, including bonuses, rose by 5.8% per year in the three months to January, down from 6.1% a month ago.
Regular pay growth, which strips out bonuses, was unchanged at 5.9%.
The BoE may be relieved to see slowing pay growth, as that lessens the risk of a wage-price spiral breaking out. On the other hand, pay is still rising almost three times as fast as its inflation target.
The report also shows that the unemployment rate remained at 4.4%, with the number of people out of work and looking for a job up by 40,000 in the quarter to 1.545m
Introduction: Bank of England expected to leave interest rates on hold
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Bank of England policymakers face a tricky situation this week when they met to set interest rates.
On the one hand, the economic picture is darkening – with UK GDP shrinking in January, the steel industry hit by US tariffs, and fears of a global trade war gripping the world economy. That’s could make the Bank consider lowering borrowing costs.
On the other hand, prices are rising faster than its target – with inflation running at 3% in January. That’s a compelling reason not to cut the cost of borrowing.
Faced with this situation, the City expects the Bank to leave policy unchanged at noon today.
The money markets indicate there’s just a 4% chance of a rate cut today, to 4.25%, and a 96% likelihood that Bank Rate is unchanged at 4.5% today.
Matthew Ryan, head of market strategy at global financial services firm Ebury, explains:
“On the one hand, the UK economy continues to trundle along at nothing more than a snail’s pace, hamstrung by acute trade uncertainties and fragile business confidence ahead of impending tax hikes.
“Yet, with most of the MPC appearing concerned about nagging upside risks to inflation, particularly stemming from sticky wage growth, we think that the hawks will get their way, with the communications to hint at only a gradual pace of cuts ahead.
The BoE last cut rates in February, when we were surprised that the previously hawkish. BoE policymaker Catherine Mann voted for a jumb reduction in rates.
There could be a similar split today, Ryan suggest:
The vote on rates appears highly unlikely to be unanimous, and we expect the two members that opted for a jumbo rate reduction last time out, Dhingra and Mann, to favour a 25bp cut on Thursday.
The decision comes at noon – before that, the Swiss and Norwegian central banks will make their interest rate announcements too, on a busy week for central bankers.
Last night, officials at the US Federal Reserve cut their US economic growth forecasts and raised projections for price growth as they kept interest rates on hold.
“Uncertainty around the economic outlook has increased,” the central bank said in a statement, as Donald Trump’s attempt to overhaul the global economy with sweeping tariffs sparks concern over inflation and growth.
The agenda
-
7am GMT: ONS releases latest UK labour market report
-
8.30am GMT: Swiss National Bank sets interest rates
-
8.30am GMT: Norway’s Riksbank sets interest rates
-
10am GMT: Eurozone construction output report for January
-
Noon: Bank of England rates decision
-
12.30pm: US weekly initial jobless claims data
-
12.30pm: Philly Fed business conditions index
-
2pm US existing home sales for February
