The latest UK wage and unemployment data showed that wage growth slowed in October, while unemployment remained steady at 4.2%. Average weekly earnings slowed from 7.8% in September to 7.3%, slightly more than forecast, with the Pound dipping slightly on the numbers, but anyone who thinks that this sort of number is likely to prompt an earlier pivot from the Bank of England when it comes to interest rate policy is kidding themselves.
The numbers are still very high by historical standards and still well north of the 2% inflation target. We should also remember that at the last meeting 3 members voted for a 25bps rate hike due to concerns about high wage and services inflation. Those 3 are unlikely to have changed their position much based on today’s numbers as we are still well above 7% and the Bank of England’s chief economist Huw Pill said that inflation was starting to become what he called “home-grown” and “harder to squeeze out of the system”.
I can’t imagine why.
The reality is that while the Bank of England was the first central bank to start raising rates, it doesn’t necessarily follow that they will be the first to start cutting. The fact is that they were too slow and tentative going into the rate hike cycle, which means that they are behind the curve and as such are likely to be equally tentative on the way out. This means that any rate cuts are likely to come later rather than sooner, although we can take comfort in the fact that rates have peaked, even if they may not come down as quickly as we’d like.
That may not be such a bad thing, given the damage that too-low rates have done over the past 15 years.
