Wage growth has slowed raising hopes interest rates will fall if inflation continues to drop
WAGE growth has slowed — raising hopes that interest rates could be cut next year if inflation continues to come down.
The Bank of England has been nervous that endless wage rises will make it harder to tame inflation.
But official figures out yesterday showed average pay grew 7.3 per cent, excluding bonuses, in the three months to October — down from 7.8 per cent.
Chancellor Jeremy Hunt said: “It’s positive to see inflation continue to fall and real wages growing.”
The figures hardened markets’ views that the Bank will keep interest rates unchanged at 5.25 per cent tomorrow.
The Bank’s governor Andrew Bailey is expected to push back on the idea that interest rates will be cut soon.
He is likely to flag that workers’ earnings are still rising faster than inflation — currently at 4.6 per cent.
This means pay has grown by 1.4 per cent in real terms.
Investors yesterday piled into buying government bonds — indicating that they expect interest rates will be lowered.
Government bonds — sometimes called the plumbing of the financial system because they are used to price virtually everything from loans to mortgages — rise in price when interest rates are expected to fall because their solid returns become more attractive.
Yesterday’s rising bond prices indicate the market is betting a 98 per cent chance that interest rates will start to fall from next June — good news for borrowers who will see cheaper interest costs.
Chris Beauchamp, chief market analyst at IG Group, said: “The slowdown in wage growth might give hope that the BoE can think more positively about cuts in rates next year, should inflation continue to come down”.
Office for National Statistics figures show the number of job vacancies has fallen by 45,000 — as firms curb hiring sprees.