Hopes are raised for an interest rate cut next year as figures show pay growth has slowed sharply

Hopes for a cut in interest rates in the first half of next year were boosted after official data yesterday showed wage growth slowed sharply.

Average weekly earnings rose 7.3 percent in the three months to October compared with the same period last year, according to the Office for National Statistics.

While that’s still a strong level of growth, it was down from 7.8 percent a month earlier, representing the biggest such drop in nearly two years.

And it appears to add to evidence that the Bank of England’s pain medicine on interest rates is doing its job of cooling the economy and easing inflationary pressures.

The payroll data is likely to have little impact on the Bank of England’s interest rate decision this week.

The Bank is expected to leave its base rate unchanged at 5.25% on Thursday.

But financial markets will be scrutinizing the Bank’s language to see when it decides to start cutting.

This appears to add to evidence that the Bank of England’s painful interest rate cure (pictured) is doing its job of cooling the economy and easing inflation pressures.

Traders are betting that rates will begin to fall from June, and some now believe this could happen in May.

However, the Bank has so far opposed these market rates, saying they underestimate how persistent inflation may be.

Inflation has fallen sharply from a high of 11.1 percent last fall to 4.6 percent today, but the Bank’s goal is to bring it down to 2 percent.

Falling wage growth coupled with stagnating GDP could persuade some rate-setters on the Bank’s Monetary Policy Committee (MPC), who have been calling for rate hikes, to change tack and vote to pause rate hikes, experts say.

The figure also showed that unemployment remained unchanged at 4.2 percent.

In another sign of a cooling labor market, data showed job openings in the economy fell for the 17th month in a row in the three months to November, the longest period of contraction on record.

However, the number of vacancies – 949,000 – remains at historically high levels.

Despite the slowdown in wage growth, it wasn’t all doom and gloom for British workers – as falling inflation means wages are rising faster than prices.

The latest data showed wages are rising 1.2 percent in real terms, the strongest pace since September 2021.

Chancellor Jeremy Hunt said: “It is good to see inflation continuing to fall and real wages rising.”

Chancellor Jeremy Hunt said it was positive to see inflation continuing to fall and “real wages rising”.

The figures will boost hopes of a so-called “soft landing” for the UK, in which inflation will be brought under control without slowing the economy so much that it falls into recession.

Elizabeth Martins, senior UK economist at HSBC, said: “This release seems quite positive to us for the UK, with the labor market appearing to be softening, without any rise (yet) in unemployment, and real incomes rising again. again.

“Of course, nothing lasts forever—one or all of these trends may change or be reversed. But given some predictions from last year, things could have been much worse.”

Martin Beck, chief economic adviser at EY ITEM, said: “The payroll data is now clearly moving in the right direction from the Monetary Policy Committee’s view.

“But with annual wage growth still more than double the rate that would meet the Bank of England’s 2 percent inflation target, the MPC is likely to stick to its ‘high for some time’ time. for a long time.” for now.