Calls for interest rate cut as lenders pull deals and wage growth slows
The Bank of England is facing renewed pressure to cut interest rates amid signs that the UK jobs market is cooling after the country slid into recession.
Wage growth slowed in the three months to January while there was a slight increase in unemployment.
The Bank is keeping a close eye on wage growth before it decides whether to cut interest rates, and yesterday’s official statistics have fuelled expectations that a reduction from 5.25 per cent will come soon.
Conservative MP Sir Geoffrey Clifton-Brown said the Bank should move to cut rates to boost economic growth, and as mortgage arrears jumped by more than 50 per cent in a year, according to Bank figures.
It also came as lenders pull and replace mortgage deals from the market at the fastest rate for six months.
The treasurer of the 1922 Committee of backbench Tories said: “The Bank should take these economic indicators into account.
“More importantly, the inflation figures are forecast to be below its [2 per cent] target by autumn, so there must be an argument for easing interest rates down now to encourage growth to reduce debt.”
Economists said the further easing back of UK wage growth revealed by the Office for National Statistics reinforces expectations that the Bank will cut interest rates, with its Monetary Policy Committee (MPC) meeting on Thursday next week.
Rob Wood, of Pantheon Macroeconomics, said: “We don’t think the surprises are large enough to cause a major change in the Bank’s
MPC guidance at their meeting next week, but the data will give the MPC a little extra confidence that they can cut rates in the summer. We expect the first Bank rate cut in June and today’s data reduce the risks of that cut being delayed.”
The Chancellor, Jeremy Hunt, insisted that the Government’s “plan is working”. He said: “Even with inflation falling, real wages have risen for the seventh month in a row.
“Take-home pay is set for another
Former Tory leader Sir Iain Duncan Smith said: “We need the Bank to start cutting rates. They are guilty of over-tightening. These figures show that they need to move on rates very soon.” boost thanks to our cuts to national insurance which, in total, are putting over £900 a year back into the average earner’s pocket.”
It came as the Budget watchdog, the Office for Budget Responsibility, said it was unclear whether Mr Hunt’s spending plans “add up”, amid pressure on politicians to be honest about cuts to public services.
In the Budget the Chancellor again said the overall level of Government spending would rise by 1 per cent in real terms a year, a figure Labour is set to match. But experts have said this implies cuts of around £20bn a year for services that are not covered by existing promises on spending, although neither Mr Hunt nor the shadow Chancellor, Rachel Reeves, have said where the axe will fall.