Home Estate Planning Wage pressures ease again making Bank of England interest rate cuts more likely

Wage pressures ease again making Bank of England interest rate cuts more likely

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Wage pressures eased again at the end of last year, making it all the more certain that the Bank of England will start cutting interest rates in the first half of this year.

Annual wage growth including bonuses averaged 5.8 per cent between October and December, according to figures from the Office for National Statistics (ONS).

This was down from last month’s figure of 6.5 per cent, although it was slightly above the 5.7 per cent expected by economists.

Excluding bonuses, the figure was 6.2 per cent compared to the roughly 6.0 per cent predicted by experts.

“In cash terms, earnings are growing more slowly than in recent months, but in real terms they remain positive, thanks to falling inflation,” Liz McKeown, director of economic statistics at the ONS said.

Wage growth has fallen fairly quickly, having peaked at over eight per cent last summer, but policymakers argue it is still too high to be consistent with the two per cent inflation target.

The Bank’s most recent Monetary Policy Report suggested that there needed to be a “moderation in pay pressures” to bring down services inflation, a key gauge of domestic inflationary pressures.

Nevertheless, today’s figures will likely convince members of the Monetary Policy Committee that wages are moving in the right direction when it comes to inflation. Other pieces of survey data suggest this trend will continue over the rest of the year.

The Chartered Institute of Personnel and Development’s outlook, released yesterday, showed that employers are planning to offers workers smaller pay rises than last year. This would be the first easing in pay growth since the pandemic.

According to the KPMG-REC jobs survey, starting salary inflation slipped to a 34-month low in January.

Given the progress on price pressures, markets expect the Bank to start cutting interest rates in May with three cuts expected over the course of the year.

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