The Bank of England is now expected to pause its cycle of interest rate cuts next month, with economists pushing back predictions for the next reduction to at least April. This shift follows the latest official data which shows UK wage growth, while slowing, is still rising too quickly to give policymakers confidence to ease monetary policy immediately.
Labour Market Shows Mixed Signals
Official figures reveal a complex picture for the UK jobs market. Average regular earnings growth slowed to 4.5% in the three months to November, marking the lowest increase since 2022. When adjusted for inflation, this translated into a modest real-terms pay rise of just 0.9% for workers.
However, the unemployment rate held steady at 5.1%, a five-year high, defying analyst hopes for a decrease in the final quarter. More strikingly, payroll data showed a sharp decline of 43,000 employees in December alone, the most significant monthly drop since the pandemic. The retail and hospitality sectors bore the brunt of these job losses, with businesses citing weak hiring demand.
Business Costs Dampen Hiring
Industry leaders point to rising employment costs as a key factor stifling recruitment. Recent increases in National Insurance contributions and an above-inflation rise in the National Living Wage have significantly raised the financial burden on private sector employers. This, combined with generally low business confidence, has made firms hesitant to take on new staff.
Despite the fall in overall payroll numbers, a glimmer of hope emerged elsewhere. Job vacancies across the nation actually rose by 10,000 to 734,000, representing the largest quarterly increase since mid-2022.
Economists Predict an April Shift
The data has led economic experts to conclude that the Bank's Monetary Policy Committee (MPC) will keep rates on hold at its February meeting. The Bank had previously cut rates to 3.75% from 4% in December, its fourth reduction last year as inflation fell.
Thomas Pugh, chief economist at RSM UK, commented: "The slowdown in private sector regular pay growth, to 3.6%, will go some way to reassuring the Monetary Policy Committee that the disinflationary slowdown in pay growth is still happening. However, total pay growth remains too fast for the MPC to relax, which will limit its ability to cut rates further this year."
Echoing this sentiment, Rob Wood, chief UK economist at Pantheon Macroeconomics, said: "The data will keep the MPC on track to cut rates again in April but gives rate setters no need to urgently ease policy next month." He believes another cut is likely in the spring.
The consensus is clear: while the direction of travel for pay is encouraging, the pace of growth is still inconsistent with the Bank's inflation target, forcing a cautious pause in the rate-cutting cycle.
