Interest rates Why Bank of England may delay a cut

Wages have increased to their highest level in more than two-anda-half years, official figures show.

However, while a welcome boost to household finances, it intensifies fears the Bank of England will delay cutting interest rates.

Average pay, excluding bonuses, stood at 6 per cent in the three months to February, Office for National Statistics (ONS) data show.

In real terms, when inflation is factored in, wage growth was 2.4 per cent – the highest since the three months to September 2021.

Because higher wages fuels inflation, the figures could delay the Bank of England’s anticipated interest rate cut. Getting inflation down is among the Bank’s priorities.

The base rate is 5.25 per cent and has been forecast to drop to 5 per cent in May, June or August. Most economists now believe June is the earliest a rate cut will be announced and many think it will be August or even September.

Alice Haine, of Bestinvest by Evelyn Partners, the wealth manager, said: “Incomes are comfortably outstripping price rises. This may not bode well for households pinning their hopes on an imminent interest rate cut to ease their borrowing costs.”

Paul Dales, chief UK economist at Capital Economics, said a rate cut in June remains a realistic possibility: “With employment falling sharply and the unemployment rate climbing, we suspect wage growth will continue to ease in the coming months. That may allow the Bank to cut interest rates in June.”

Yael Selfin, chief economist at KPMG UK, said: “Easing pressure in the labour market keeps the Bank on track for a summer rate cut.”

The Bank’s next Monetary Policy Committee meeting – where decisions over rates are taken – is at the start of May, followed by one in June, and then in August. The ONS has also cautioned against the reliability of the jobs market data due to a plunge in the number of responses it receives to its surveys.