Several economists are predicting that the slowdown in pay growth across Great Britain will prompt the Bank of England to cut interest rates at its next meeting in early November. The data that regular wage growth slowed to 4.9% in June to August, down from 5.1% the previous month, has led to expectations of a rate cut from 5.00% to 4.75%. This move is seen as likely, with a rate cut already viewed as an 83% chance, now inching up towards 85%.
Analysts point to the further fall in wage growth and signs of a gradually loosening labor market as reasons for the anticipated rate cut. A decline in services sector pay growth and a drop in vacancies are also cited as contributing factors. The easing wage pressures are seen as positive for inflation and may give the Bank of England increased confidence in cutting interest rates.
Although the unemployment rate has decreased to 4%, and total pay growth remained above inflation, the declining wage growth indicates a weakening demand for labor. The falling oil prices are also contributing to the easing inflationary pressures, making it easier for central banks to lower interest rates. The upcoming CPI inflation data will also play a significant role in the Bank’s decision next month.
Overall, the labor market data supports the ongoing trend of rate cuts from the Bank of England, with the potential for another reduction in December, as the economy navigates through uncertainties caused by Brexit, Covid-19, and other economic challenges.
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