Hopes of a Bank of England interest rate cut were boosted yesterday after figures showed UK wage growth slowing and unemployment ticking higher – adding to signs that inflation pressure is easing.
But it contrasted with data showing a surprise increase in inflation in the United States.
Bank of England governor Andrew Bailey warned that despite the apparently ‘benign’ trend of global inflation coming down, the world is ‘a much more uncertain and dangerous place than we have been used to’.
Figures from the Office for National Statistics (ONS) showed unemployment in Britain climbed to 3.9 per cent in the three months to January, up from 3.8 per cent, and wage growth slowed from 6.2 per cent to 6.1 per cent and job vacancies fell to 908,000.
Inflation down: Pressure on the Bank of England to cut rates has been building amid signs that the bitter medicine of rate rises has been working
George Buckley, chief European economist at investment bank Nomura, said: ‘As we head through the year, we expect the pressure for the Bank to cut rates to build, with labour market data being a key factor in the decision making.’
Signs that the jobs market is cooling should give the Bank more leeway to reduce rates, delivering relief for millions of borrowers.
That boosted the FTSE 100, which hit its highest level since May last year during yesterday’s session and closed up 1 per cent, or 78.58 points, at 7,747.81.
Traders have been betting a rate cut will not happen until August but see a roughly 50/50 chance it could happen as soon as June.
Pressure on the Bank of England to cut rates has been building amid signs that the bitter medicine of rate rises has been working, with inflation falling from 11 per cent to 4 per cent.
Latest signs of the strain came in figures from the Bank yesterday showing an increase in mortgage arrears to a seven-year high.
In the US, the battle against inflation initially made swifter progress but suffered a setback yesterday as figures showed it rose to 3.2 per cent in February, up from 3.1 per cent in January.
That has scotched hopes that the US Federal Reserve might cut interest rates as soon as next week.
In Britain, the coming week will provide clues about how soon interest rates will come down.
Monthly GDP figures today are expected to show the economy grew by 0.2 per cent in January, adding to signs that Britain is emerging from last year’s recession.
Inflation data next week looks set to reveal that it fell below 4 per cent in February.
Yesterday, Bank governor Andrew Bailey told a central banking event in Italy that inflation was ‘coming down rapidly’.
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