Cooling UK wage growth warms up betting for BoE interest rate cut

(Alliance News) - London market sentiment got a boost after numbers on Tuesday showed that UK wage growth slowed in January, raising the chances of the Bank of England cutting interest rates "sooner rather than later".

"The data has shifted the dial a bit on when money markets expect to see Bank of England rate setters finally pushing the button to bring interest rates down, but wage growth is still uncomfortably high and with a bit more money in people's pockets thanks to cuts to NI and falling inflation the MPC is likely to want to watch what happens in the next couple of months before taking action," said AJ Bell's Danni Hewson.

According to the Office for National Statistics, the nation's unemployment rate in the three months to January increased to 3.9%, from 3.8% in the three months to December.

The jobless rate was expected to remain at 3.8% for the period, according to FXStreet-cited market consensus.

The ONS said average earnings excluding bonuses rose 6.1% on-year in the period, with the pace of growth easing from 6.2% in the three months to December, where it had been expected to remain. Including bonuses, growth eased to 5.6% from 5.8%. According to FXStreet, a slowdown to just 5.7% was expected.

The data comes ahead of the Bank of England's next interest rate decision on Thursday next week.

AJ Bell's Russ Mould noted that the data has raised the chances of the BoE cutting interest rates "sooner rather than later".

Likewise, analysts at Lloyds Bank said "the outturns may boost hopes of an UK interest rate cut, although most Bank of England policymakers will still want to move cautiously."

Victoria Scholar at interactive investor agreed: "Wage growth, although weakening slightly, remains relatively robust which may not be enough for the Bank of England. The central bank has made it clear it wants to see significant evidence that pay growth is slowing before cutting interest rates.

"Nonetheless it still looks like a summer rate cut is on the cards," Scholar said.

Before the BoE's next interest rate decision, there is the UK gross domestic product report for January on Wednesday this week, and a consumer price index reading exactly a week later. Both could play a role in decision-making.

Numbers in February had showed annual UK consumer price inflation was unchanged at 4.0% in February, the same as in January.

By Sophie Rose, Alliance News senior reporter

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