Bank of England set to make two more rate cuts as GDP stagnates and wages cool
Slowing wage growth is likely to pave the way for two more rate cuts this year.
According to the Office for National Statistics (ONS), the average weekly wage in the three months to July was 5.1 percent higher than a year earlier.
The earnings figures were followed this morning by data showing the UK economy has flattened for a second month, with GDP growth of zero in July. Economists had expected growth of 0.2 percent after a pre-election stagnation.
Interesting point: Experts said cooling wage growth should prompt the Bank of England to cut rates further this year, following a quarter-percentage point cut from 5.25% to 5% in August.
Wage growth was the slowest in two years, marking a sharp slowdown from July last year, when wages rose 7.8 percent.
While the ONS said average regular earnings excluding bonuses rose by 5.1 per cent, total earnings including bonuses rose by 4 per cent. The latter figure is used for the state pension triple lock and should deliver an annual rise of £460 for pensioners from April.
Experts say this should be enough to convince the Bank of England to cut rates further this year – following a quarter-percentage point cut from 5.25 percent to 5 percent in August.
Ashley Webb, economist at Capital Economics in the UK, said: “The Bank of England will welcome further moderation in wage growth as a sign that labour market conditions are continuing to cool.”
But few expect the Bank to push for another cut when the Monetary Policy Committee, which sets rates, meets next week. Instead, markets are betting on a quarter-point cut in November and another in December. That would take rates to 4.5 percent.
The wage slowdown is less damaging to workers’ household finances than it might have been, because inflation has slowed sharply. Excluding the impact of inflation, wages are rising by 3 percent, close to three-year highs.
And yesterday’s figures also painted a rosier picture for the broader labour market, once again putting an end to Labour’s much-discussed claim that it has inherited the worst economic situation since World War II.
Unemployment fell to 4.1 percent, the lowest level in the three months to January, according to the ONS.
Employers created an additional 265,000 jobs in the three-month period, far more than the 123,000 economists had predicted.
Kallum Pickering, chief economist at brokerage Peel Hunt, said: “This is a solid labour market report.”
The ONS figures also showed a welcome fall in the number of working-age people considered economically inactive – meaning they are neither working nor looking for work – from 9.4 million to 9.3 million.
However, this staggering figure is still close to record highs and concerns more than a fifth of the 16 to 64 age group.
This also includes people who are long-term ill. That number is also close to record levels, but has fallen for the third month in a row to just under 2.8 million.
Meanwhile, the number of job openings fell by 42,000 to 857,000 in the three months through August, the lowest level since June 2021 and the 26th month of decline.
More evidence of the economy’s progress will be provided today when the ONS publishes its monthly growth figures for July.
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