Job boom puts interest rate cut in doubt

Sterling rallied yesterday as booming jobs figures slashed the chances of an interest-rate cut later this month.

With record numbers in work, analysts said the case for giving the economy a shot in the arm with cheaper borrowing costs has sharply diminished. that made the pound more attractive on foreign exchanges, with sterling rising towards $1.31 and €1.18.

Weak growth figures recently seemed to bolster the case for the interest rate to come down from 0.75pc, perhaps to 0.5pc, to pep up the economy.

Market movements suggested traders saw a 75pc chance of a cut when the Bank of england’s Monetary Policy Committee (MPC) meets on January 30. But with the total in work at a record high of 32.9m in the three months to november, and unemployment at a 45-year low of 3.8pc, Britain’s jobs boom shows no sign of ending.

‘Markets have backed off in terms of expecting a rate cut,’ said Peter Dixon, global financial economist at Commerzbank. ‘it shows the power of these numbers to impact on market thinking.’

A rate cut would be welcomed by borrowers with mortgages, but it would spell further misery for savers who have endured more than a decade of dismal returns.

rates hit a record low of 0.5pc during the financial crisis in 2009 and fell to 0.25pc following the Brexit vote in 2016.

they have risen since then, but only slightly, to 0.75pc, having spent much of the decade before the financial crisis at around 5pc.

trevor Williams, an economist who is a visiting professor at Derby University, said: ‘Jobs are still being created and wage inflation is picking up. On the basis of these figures, you would expect monetary policy to stand still, although the Bank would be prepared to take action if that should be necessary a little way down the line.’

Dhaval Joshi, of consultancy BCA research, said: ‘the Bank says it is watching all incoming data, and these figures would certainly warrant a delay in cutting interest rates.

‘it is significant that the MPC meeting takes place the day before Britain is due to leave the eU. Of course, not much will change immediately, but i suspect the Bank would prefer not to make any moves less than 24 hours before Brexit. it could look almost as if it were passing a comment on Brexit. the optics would not be good.’

george Buckley, chief UK economist at nomura, said the jobs figures were unhelpful for those seeking a rate cut. Only if the Purchasing Managers’ indices, due on Friday, paint a bleak picture would the possibility of lower rates come back into focus.