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Latest labour data slims down odds of September rate cut

Journalist: John Choong (Head of Markets and Research), Newspage

ended 13. August 2024

Total pay growth saw its slowest growth in almost 3 years, to 4.5% from 5.7% in data published by the Office for National Statistics this morning. However, wage growth is still a long way away from levels that are consistent with 2% headline inflation. The less volatile regular earnings growth metric only slowed to 5.4% in the 3 months to June from 5.8% in May, above the Bank of England’s forecast of 5.2%, and significantly short of consensus of 4.6%. What's more, the unemployment rate actually dropped to 4.2% from 4.4%. Given the strong relationship between wage growth and services inflation (one of the Bank of England's most scrutinised metrics), this could see services inflation come in hotter than forecast tomorrow and push back the odds of a rate cut in September. Newspage asked experts for their views, bottom.

2 responses from the Newspage community

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Editor
Ben Perks
Managing Director at Orchard Financial Advisers
We could see some of the coolest data possible and I still don’t think the Monetary Policy Committee will cut the base rate in September. So service inflation coming in hotter than expected shouldn’t rock the boat too much.
Stability is key at the moment and then look to cut again in a few months time.
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Editor
Wes Wilkes
CEO at IronMarket Wealth
Slowing wage growth was cited as a key reason for the very tight vote to cut the base rate in July.
To see further slowing of that metric will be pleasing to the bank and the committee.
There is an expectation that CPI inflation may pop back up off their 2% target, but the really key number will be the services inflation number.
Recorded at 5.7% in June, should this not see significant decline, along with a tight labour market and still high wage growth, the combination may give a louder voice to the 4 MPC members who voted to leave rates last time around to say the job on inflation is not yet a done deal.
Plenty of room for a pause at 5% as it stands today.