If hopes for an interest rate cut from the Bank of England this Thursday were already pretty slim, today’s upside surprise on earnings growth has effectively pushed the needle from slim to none.
Most analysts, including investment bank UBS, have broadly expected the BoE to keep the cash rate at 4.75% when the committee convenes in a couple of days.
UBS, which said the BoE will stick to its “gradual approach” to policy easing amid ongoing uncertainties, forecasts the next cut to take place in February 2025, followed by a cumulative 150 basis points of cuts over the year.
This would bring rates down to 3.25% by the end of 2025.
UBS noted that mixed economic data, including slightly higher-than-expected October inflation, has reinforced the BoE's cautious stance.
The job of reducing inflation copped another snag following today’s ONS report on wage inflation, which showed that regular pay excluding bonuses increased 5.2% year on year in October.
This was higher than the previous month and above the 5% forecast.
“The wage moves are inflationary at a time when the battle was close to being won, and this release adds further probability that the central bank will leave interest rates to run at current levels before reviewing the situation in the new year,” said interactive investor’s Richard Hunter of the data.