The Bank of England is likely to continue gradually cutting rates next year after figures from the Office of National Statistics yesterday showed wage growth hitting a two-year low, while unemployment unexpectedly surged.
Wage growth fell to its lowest level in more than two years while Britain’s jobless rate jumped by more than expected.
The Office for National Statistics (ONS) said average regular earnings growth eased back to 4.8% in the three months to September, down from 4.9% in the previous three months. This marked the lowest level since the three months to June 2022. Total pay growth (including bonuses) recorded 4.3%.
The National Institute of Economic and Social Research (NIESR) says that with inflation falling, annual growth in real regular pay remains strong at 2.2%, meaning workers will see a continued recovery in their standard of living.
UPWARD PRESSURE
Monica George Michail, NIESR Associate Economist, says: “The ONS figures indicate that wage growth continues to ease, recording 4.8 per cent (excluding bonuses) in the third quarter of 2024, its lowest level since June 2022.
“With vacancies falling and unemployment rising, we forecast wage pressures to ease in the coming months.
“However, the announced rise in National Living Wage would exert some upward pressure in April.
“We expect the Bank of England to continue gradually cutting rates in 2025.”
FUTURE CUTS
And Lindsay James, Investment Strategist at Quilter Investors, adds: “The pace of future cuts is looking much less certain than it once was.
Expectations for cuts have been scaled back considerably, and rates are now not expected to fall below 4% in 2025.
“Wage growth and unemployment will remain high on the Bank’s agenda.
“We are likely to see a continuation of the slow and steady approach it is currently taking.”
MORTGAGE RATES
But despite the expectation of future rate cuts major banks yesterday announced mortgage rate are going up.
HSBC, Santander, Nationwide, TSB and Virgin all raised rates amid a worsening mortgage market.
FUEL INFLATION
City insiders worry that recent budget measures could fuel inflation with additional costs for businesses – like the minimum wage increase and national insurance rise – potentially being passed on to consumers.
Last week, the Bank of England cut the base rate to 4.75%, signaling that any further reductions would be ‘gradual’ and leading markets to lower their expectations for another rate cut in December.
High street banks had been gradually reducing rates in anticipation of successive base rate cuts but now appear to be adjusting course – likely due to unforeseen budget implications or year-end lending targets having already been met.
CONFLICTING SIGNALS
Walter Avrili, Technical Director at broker Mortgageforce, says: “There are conflicting signals surround interest rates. While rising wages could support holding rates steady, the pace of wage increases has moderated, and higher unemployment leans toward a more dovish stance.
“Markets will be watching closely for clues on the Bank of England’s approach to balancing these factors in upcoming policy meetings.
“Also, they’ll be cautious of the impact of the National Insurance Contribution hike on inflation, wage growth, and unemployment.”
And he adds: “Swaps are ticking up which is making lenders nervous enough to increase rates across the board.”
