Connect with us

Published

on

The prospects for an interest rate cut next month have not been helped by the latest wage growth figures which have come in higher than expected.

Data from the Office for National Statistics (ONS) showed regular wage growth, excluding the effects of bonuses, was 6% higher over the three months to March compared with a year earlier.

That was no lower than the sum reported the previous month.

Money latest: The rise of Michelin starred ‘fast food’

The ONS reported that total pay was also static, at an upwardly revised 5.7% for the period.

Economists had been expecting declines in both readings.

The data also showed a rise in the unemployment rate from 4.2% to 4.3%.

ONS director of economic statistics Liz McKeown said: “We continue to see tentative signs that the jobs market is cooling, with both employment from our household survey and the number of workers on payroll showing falls in the latest periods.

“At the same time, the steady decline in the number of job vacancies has continued for a twenty-second consecutive month, although numbers remain above pre-pandemic levels.

“With unemployment also increasing, the number of unemployed people per vacancy has continued to rise, approaching levels seen before the onset of COVID-19.

“Earnings growth in cash terms remains high, with the recent falls in the rate now levelling off while, with inflation falling, real pay growth remains at its highest level in well over two years.”

The figures were released against a backdrop of intense speculation on the timing of a Bank of England interest rate cut.

The Bank, which last week signalled further progress in efforts to bring down inflation, has held the rate at 5.25% since last summer.

Please use Chrome browser for a more accessible video player

‘Path is downwards’ on interest rates

The rate-setting committee wants to see a “sustainable” return to its 2% inflation target before imposing the first cut.

Wage growth has been among the stubborn factors of concern.

Read more:
UK no longer in recession
Interest rate cut is not far off – but there are complicating factors

The Bank feels that the pace, currently around double the rate of price growth, risks fuelling a second round of inflation because more discretionary spending could result in higher prices.

Its chief economist Huw Pill later said in a speech that the pay growth rates remain “quite well above” what would be consistent for meeting the target sustainably.

Inflation figures out next week, which cover the month of April, are tipped to show a sharp easing in the main consumer prices index (CPI) measure, largely due to plunging energy bills.

A figure just above 2% is forecast by economists.

Please use Chrome browser for a more accessible video player

UK comes out of recession

The Bank has resisted the temptation to cut borrowing costs as it believes that figure could shift back up towards 3% in the second half of the year.

Financial markets saw a 53% chance of a rate cut on 20 June – the monetary policy committee’s (MPC’s) next meeting.

While restrictive monetary policy was largely blamed for the UK’s recession during the second half of 2023, the economy has since performed better than expected.

That complicates the picture for the MPC.

Separate ONS data last week showed a 0.6% rise in gross domestic product during the first quarter of the year.

As with the wage figures, the Bank will be anxious that a growth spurt risks fanning the flames of inflation.

Follow Sky News on WhatsApp
Follow Sky News on WhatsApp

Keep up with all the latest news from the UK and around the world by following Sky News

Tap here

Policymakers have said their decisions will be data dependent.

There is a further employment report due from the ONS ahead of 20 June and two sets of inflation figures between today and that date.

Yael Selfin, chief economist at KPMG UK, said of the rate cut prospects: “Next month will be key in terms of pay data as it will provide initial evidence of the impact of April’s National Living Wage increase.

“If it comes in line with our expectations of only a modest boost, and sufficient to keep annual pay growth on a downward trajectory, this could ignite more dovish sentiment on the MPC ahead of their June vote.”

Rob Wood, chief UK economist at Pantheon Macroeconomics, believed the Bank would back a rate cut at its next meeting.

“Much as we have concerns over the jobs data, the labour market keeps gradually easing, and they give the MPC a hook to hang a June rate cut on,” he wrote.

Continue Reading

Business

Billions for ‘unproven’ carbon capture technology will have ‘very significant’ impact on energy bills, MPs warn

Published

on

By

Billions for 'unproven' carbon capture technology will have 'very significant' impact on energy bills, MPs warn

The government is spending £22bn on “unproven” technologies which will have a “very significant effect” on energy bills, according to an influential committee of MPs.

There has been no assessment of whether the programme to capture and store carbon from the atmosphere is affordable for billpayers, said a report from the Public Accounts Committee (PAC) of MPs.

The financial impact on households of funding the project has not been examined by government at all, the PAC said.

Money blog: Greggs taking on KFC with new range

Even if the state’s investment pays off, the technology is successful and makes money, there is no way for profits to be shared to bring down bills, it added.

Private sector investors, however, would recoup investment, according to committee chair Sir Geoffrey Clifton-Brown.

“All early progress will be underwritten by taxpayers, who currently do not stand to benefit if these projects are successful,” he said. “Any private sector funding for such a project would expect to see significant returns when it becomes a success.”

That’s despite the vast majority (two-thirds) of the £21.7bn investment coming from levies on consumers “who are already facing some of the highest energy bills in the world”, it said.

But there is no evidence to say the programme will be successful despite the government “gambling” its legally mandated net zero targets on the tech, committee chair Sir Geoffrey added.

Please use Chrome browser for a more accessible video player

PM to invest £22bn in carbon capture

There are no examples of carbon capture, usage and storage (CCUS) operating at scale in the UK, according to the PAC report.

As part of its work, the PAC heard the technology may not capture as much carbon as expected.

International examples show the government’s expectations for its performance are “far from guaranteed”, it heard as part of its inquiry.

Read more:
UK’s first air capture plant to turn CO2 into jet fuel
Trump faces stick or twist China space race choice

A threat to net zero

This lack of proof of the technology working is a threat to the UK reaching its net zero 2050 emissions targets.

Last year the government downgraded the amount of carbon it expects to store each year as the goals were seen as “no longer achievable”, but no new targets have been announced, creating a shortfall in the path to net zero.

It is now “unclear” how the government will reach its goal, the PAC report said.

“Our committee was left unconvinced that CCUS is the silver bullet government is apparently betting on”, Sir Geoffrey said.

The £22bn investment was due to be made over 25 years and into five CCUS projects.

Continue Reading

Business

Interest rate cut – but economic growth forecast slashed in blow to chancellor

Published

on

By

Interest rate cut - but economic growth forecast slashed in blow to chancellor

The Bank of England has cut interest rates by another quarter percentage point, bringing down the cost of borrowing to 4.5%.

And in a sign that households can expect more cuts in the months to come, two members of the Bank‘s Monetary Policy Committee said they would have preferred to reduce rates even more, by a full half percentage point.

Follow live reaction to interest rate cut in the Money blog

However, the Bank slashed its forecast for economic growth, forecasting that the economy will skirt clear of a formal recession only by the narrowest margin in the coming months, and downgraded its estimate of the economy’s ability to generate income. And in a further blow to the chancellor, it said her latest growth plans, unveiled in a speech last week, will add nothing to gross domestic product growth in its forecast horizon.

The Bank’s governor, Andrew Bailey, said: “It will be welcome news that we have been able to cut interest rates again today. We’ll be monitoring the UK economy and global developments very closely and taking a gradual and careful approach to reducing rates further.

“Low and stable inflation is the foundation of a healthy economy and it’s the Bank of England’s job to ensure that.”

Please use Chrome browser for a more accessible video player

UK interest rate cut to 4.5%

The Bank’s forecasts seem to indicate that there will be at least two further rate cuts in the coming years and that that will be enough to bring inflation down towards its 2% target. However, investors are betting on more cuts.

The Monetary Policy Report and Bank forecasts released alongside the decision today signal that the economy is due to have another few years of weakness. They cut the forecast for economic growth this year, next year and the following year, as well as raising the inflation forecast. The Bank also said that the economy’s potential growth rate had dropped, down from 1.5% this time last year to 0.75% at the moment.

It said that while it expected last October’s budget to boost economic growth by 0.75%, thanks largely to greater public investment, it also expected the National Insurance rise to weigh down on activity, in particular by pulling down employment.

Analysis: Where do interest rates go from here?

It also warned that the tariffs threatened by Donald Trump on various economies posed a risk for economic growth in the coming years, though it has yet to incorporate them into its models.

Continue Reading

Business

Interest rate path is tricky to navigate in tougher economy

Published

on

By

Interest rate path is tricky to navigate in tougher economy

Let’s start with the simple bit: interest rates have been cut – down by another quarter percentage point to 4.5%. But what happens next?

Not long ago, the answer was quite simple: the Bank of England would carry on cutting borrowing costs, one quarter point cut every three months, until they reached, say, 3.5%.

That, at least, was the expectation this time last year.

Money latest: First-time buyers warned over auctions

But things have become more complex, more unpredictable in recent months.

Instead there are two paths ahead of us. One of them, let’s call it the high road, sees those borrowing costs being cut only gradually, down to 4% in a couple of years’ time.

Down the other road, the low road, the outlook is quite different: rates will be cut faster and more. They go down below 4%, perhaps as low as 3.5%, perhaps even lower.

More on Bank Of England

The funny thing about today’s splurge of information and forecasts from the Bank of England is that it’s not entirely clear whether we’re on the high road or the low road anymore.

Now, strictly speaking, the forecasts and fan charts produced by the Bank’s staff tend towards the former, more conservative view – the two cuts.

But then look at the voting patterns on the monetary policy committee (MPC), where two members, Swati Dhingra and Catherine Mann just voted for a full half percentage point cut, and you’re left with a different impression. That rates will go lower, and quickly.

Please use Chrome browser for a more accessible video player

Britain has ‘huge potential’

And in truth, that’s what often happens when the economy is weakening.

When gross domestic product, the best measure of economic output, is flatlining or shrinking, when inflation is low (especially when you look beyond the temporary bump caused by energy prices) – that’s usually precisely the time the Bank slashes rates with abandon.

And that’s precisely the situation the UK finds itself in at the moment.

Read more from Sky News:
Tesco eyes delivery of Crown Post Office branches
Starmer to slash red tape to build nuclear reactors
Race to avoid Trump tariffs as US imports hit record high

But the problem is that a few things have complicated matters.

One is that the government decided to splurge more money in last October’s budget. That extra money sloshing around in the economy makes the Bank somewhat less willing to cut rates.

Another is that although the economy is weak, inflation is still high – indeed, the Bank actually raised its forecast for the consumer price index in today’s forecasts. Another is that the world economy has become a significantly more unstable place in recent months.

Germany is in recession. The US, under Donald Trump, is threatening tariffs on its nearest allies.

It’s not altogether clear whether the response to all this is lower interest rates.

Added to this, despite the chancellor’s best efforts, there is little evidence that her pro-growth policies are boosting economic growth – at least according to the Bank’s own forecasts.

Please use Chrome browser for a more accessible video player

Reeves risks economic ‘doom Loop’

These are tricky waters to navigate.

All of which helps explains why it’s no longer quite as clear as it once was what happens next.

My suspicion is that the Bank will end up cutting rates, probably more than those two cuts baked into its forecasts. But such forecasts are even more fraught than usual.

Continue Reading

Trending