Pay ‘rising too fast for interest rate cut’

PAY is rising too fast for the Bank of England to cut interest rates, economists have warned, after wages rose by 6.2pc in the year to December.

The rise in average regular pay was the smallest in more than a year, says the Office for National Statistics (ONS).

However, it was still higher than the 6pc predicted by the Bank, raising fears that interest rates will be higher for longer as officials ensure inflationary pressures are fully extinguished before lowering borrowing costs.

Following the pay data, traders trimmed their bets on an early rate cut, with a reduction from the current level of 5.25pc to 5pc only now fully priced in for August. The pound climbed 1.5pc to a six-month high of €1.1744 against the euro. It is also up against the dollar at $1.2650.

The number of people kept out of the jobs market by long-term sickness remains near an all-time high, ONS figures showed. One person in every 15 of working age – 6.6pc, equivalent to 2.8m people – said ill health kept them from working or from looking for a job in the final quarter of 2023. The number was down only slightly on 2.81m in the three months to November.

Hannah Slaughter at the Resolution Foundation said: “This is holding back the economy, putting pressure on the public finances and the NHS, and limiting opportunities for too many people.

Reversing this trend will be a priority for the current and next government.”

Employers cut back bonuses before Christmas, meaning total earnings grew at the slowest pace since July 2022, at 5.8pc. However, once falling inflation is taken into account, real earnings in the final quarter of the year increased 1.9pc compared with the same period of 2022.

The number of job vacancies dropped to 932,000, the lowest since mid-2021. GDP figures tomorrow will reveal whether the country has fallen into a shallow recession.

It came as inflation in the US fell by less than expected in January to 3.1pc in a blow to hopes of an interest rate cut soon. The figure sparked stock sell-offs, with the FTSE 100 closing down 0.8pc.