Bank of England interest rate cut 'a slam dunk' but expert issues warning

Experts have described the chances of the Bank of England cutting interest rates next month as a 'slam dunk' following the release of new data.

Wage growth has slowed to its lowest level for over two years, according to new data from the Office for National Statistics (ONS), which has boosted hopes that interest rates will be cut again when the Bank's Monetary Policy Committee (MPC) meet again in November.

Average regular earnings growth eased back to 4.9 per cent in the three months to July - the lowest level since the three months to June 2022 - down from 5.1 per cent in the previous three months.

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Pay growth hit a record high of nearly 8 per cent in summer 2023 and it continues to outstrip inflation, rising by 2.6 per cent in the three months to August with the Consumer Prices Index (CPI) taken into account.

Experts say they expect the Bank of England to cut rates again next month, with most economists now pencilling in a reduction to 4.75 per cent from the current rate of 5 per cent. Rob Wood, chief UK economist at Pantheon Macroeconomics, said "slowing wages make a November rate cut a slam dunk".

Speaking after the figures were released on Tuesday morning, he said: "A 25 basis point November Bank Rate cut is a racing certainty based on pay growth weakening". However, he warned that interest rates were not expected to come down rapidly, suggesting rate cuts may only be made once each quarter.

The rate was reduced for the first time in more than four year, from 5.25 per cent to 5 per cent, in August. The MPC then voted to hold rates at the same level last time they met, despite hopes another cut might be on the cards.

Mr Wood said: "We think the Monetary Policy Committee (MPC) will cut rates only once a quarter after [this month] as the labour market remains tight, even if it is easing."

Bank governor Andrew Bailey also recently fuelled expectations of a November rate reduction when he said cuts could become “more aggressive”.

Today's wage growth data came alongside figures that signal further weakness in the jobs market. The ONS data showed vacancies dropping by 34,000 to 841,000 in the quarter to September - the lowest level since March to May 2021.

The number of workers on UK payrolls also fell in September to 30.3 million, down by 15,000. However, the UK unemployment rate unexpectedly eased back to 4 per cent in the three months to August, down from 4.1 per cent in the previous quarter, though the ONS said the estimate should be treated with caution given responses to its jobs survey.

David Freeman, head of the ONS labour market and household division, said: “Over the last three months the number of people on payrolls has stayed broadly flat. The labour force survey shows a different picture and we would advise caution when interpreting changes in these data while we continue to improve survey responses. Vacancies have fallen once more, with most industries seeing a fall on the quarter.”

Official figures on Wednesday are also expected to show inflation falling sharply in September, with most economists forecasting a drop to 1.9 per cent from 2.2 per cent in August thanks to falling fuel prices in another boost to rate cut hopes.

The Resolution Foundation think tank warned the jobs market weakness could spell the end of big pay hikes. Charlie McCurdy, economist at the Resolution Foundation, said: "The jobs market continues to soften… this softening means that wage rises are also starting to weaken. Should these labour market trends continue, Britain’s brief era of healthy pay growth could soon end."