Introduction: Bank of England expected to leave interest rates on hold
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Bank of England policymakers face a tricky situation this week when they met to set interest rates.
On the one hand, the economic picture is darkening – with UK GDP shrinking in January, the steel industry hit by US tariffs, and fears of a global trade war gripping the world economy. That’s could make the Bank consider lowering borrowing costs.
On the other hand, prices are rising faster than its target – with inflation running at 3% in January. That’s a compelling reason not to cut the cost of borrowing.
Faced with this situation, the City expects the Bank to leave policy unchanged at noon today.
The money markets indicate there’s just a 4% chance of a rate cut today, to 4.25%, and a 96% likelihood that Bank Rate is unchanged at 4.5% today.
Matthew Ryan, head of market strategy at global financial services firm Ebury, explains:
“On the one hand, the UK economy continues to trundle along at nothing more than a snail’s pace, hamstrung by acute trade uncertainties and fragile business confidence ahead of impending tax hikes.
“Yet, with most of the MPC appearing concerned about nagging upside risks to inflation, particularly stemming from sticky wage growth, we think that the hawks will get their way, with the communications to hint at only a gradual pace of cuts ahead.
The BoE last cut rates in February, when we were surprised that the previously hawkish. BoE policymaker Catherine Mann voted for a jumb reduction in rates.
There could be a similar split today, Ryan suggest:
The vote on rates appears highly unlikely to be unanimous, and we expect the two members that opted for a jumbo rate reduction last time out, Dhingra and Mann, to favour a 25bp cut on Thursday.
The decision comes at noon – before that, the Swiss and Norwegian central banks will make their interest rate announcements too, on a busy week for central bankers.
Last night, officials at the US Federal Reserve cut their US economic growth forecasts and raised projections for price growth as they kept interest rates on hold.
“Uncertainty around the economic outlook has increased,” the central bank said in a statement, as Donald Trump’s attempt to overhaul the global economy with sweeping tariffs sparks concern over inflation and growth.
The agenda
-
7am GMT: ONS releases latest UK labour market report
-
8.30am GMT: Swiss National Bank sets interest rates
-
8.30am GMT: Norway’s Riksbank sets interest rates
-
10am GMT: Eurozone construction output report for January
-
Noon: Bank of England rates decision
-
12.30pm: US weekly initial jobless claims data
-
12.30pm: Philly Fed business conditions index
-
2pm US existing home sales for February
Key events
Bosses urged to provide more health support for workers
Richard Partington
Britain’s employers should provide more health support for millions of people at risk of dropping out of the workforce, the ex-high street boss leading a government review has said.
After the government announced deep cuts to sickness and disability benefits, Sir Charlie Mayfield, the former John Lewis boss, said it was clear that some companies were not doing enough to help people with health conditions to stay in a job.
Appointed late last year by the work and pensions secretary, Liz Kendall, to lead a “keep Britain working” review, he said employers had a role to play alongside the government to ensure there was enough support.
Getting employers to expand the support available for employers would not however come without a cost, he warned.
Mayfield told the Guardian:
“It’s clear there are gaps in provision in the UK. There are employers already filling those by creating their own processes. We will need to figure out how that could happen more widely including the costs and benefits of different options.”
“These are important considerations. Addressing these issues and improving how the labour market works will be valuable in all sorts of ways. Equally failing to will be damaging financially and socially. After all, higher welfare costs and lower productivity also need to be paid for.
Alongside saving billions of pounds from the welfare budget ahead of next week’s spring statement, ministers argued reforms in the benefits system were required to help tackle a rising tide of health-related economic inactivity in Britain.
In an initial report published on Thursday, Mayfield’s review found there are 8.7 million people in the UK with a work-limiting health condition, up by 2.5 million (41%) over the last decade, including 1.2 million 16-34-year-olds and 900,000 50-64-year-olds.
Official figures show economic inactivity – when working age adults are out of a job and not looking for one – has soared in recent years to about 9 million, including about 3 million people in long-term ill health.
Mayfield’s report argued employers had a role to play to prevent workers with health conditions from slipping into inactivity. However, the focus on getting industry to address the issue comes as some business leaders warn ministers they are being “milked” by the government through higher tax rises and new workers’ rights, which could force them to cut jobs, limit pay, and hold back from investment in the workforce.
Although backing the government’s welfare reforms, Mayfield’s review also said extra job support was more important. “Our strong view is that there is little evidence that those in work or those who have been in work until recently, set out with the aim of being ‘on benefits’,” it said.
Private sector pay growth outpaced earnings growth in the public sector over the winter.
Today’s labour market report shows that annual average regular earnings growth was 6.1% for the private sector in November-January – up from 5.5% in August-October.
But in the public sector, pay rose by 5.3% per year in the three months to January, up from 4.3% in the previous quarter.
The ONS reports:
The wholesaling, retailing, hotels and restaurants sector showed the strongest regular growth rate at 6.3%, followed by construction at 6.2%. The public sector and finance and business services had the lowest annual regular growth rate at 5.3%.
ONS: pay growth remains relatively strong
ONS director of economic statistics Liz McKeown has summed up today’s UK labour market report:
“Overall pay growth remains relatively strong, with pay growth high in both the public and private sectors, despite the latter slowing slightly in the latest period.
“The wider labour market picture is relatively unchanged, with the number of employees on payroll broadly flat in the latest period and with little growth seen over much of the last year.
“Unemployment, as measured by the Labour Force Survey, and the Claimant Count have both increased slightly in the latest periods, though caution continues to be advised with the survey estimates.
“Initial estimates show that the number of vacancies is little changed on the previous quarter, remaining just above pre-pandemic levels.”
Once you adjust for inflation, real regular pay rose by 3.2% over the last year while real total pay (incuding bonuses) increased by 3.1%.
Both real regular and total real annual growth were higher in the previous three-month period, when they were 3.4% and 3.5%, respectively, the ONS adds.
UK wage growth slows, a little
Ahead of the Bank of England interest rate announcement, we have a new healthcheck on Britain’s jobs market.
And it shows that wage growth has slowed slightly, while unemployment is a litte higher than a year ago.
The Office for National Statistics reports that total pay, including bonuses, rose by 5.8% per year in the three months to January, down from 6.1% a month ago.
Regular pay growth, which strips out bonuses, was unchanged at 5.9%.
The BoE may be relieved to see slowing pay growth, as that lessens the risk of a wage-price spiral breaking out. On the other hand, pay is still rising almost three times as fast as its inflation target.
The report also shows that the unemployment rate remained at 4.4%, with the number of people out of work and looking for a job up by 40,000 in the quarter to 1.545m
Introduction: Bank of England expected to leave interest rates on hold
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Bank of England policymakers face a tricky situation this week when they met to set interest rates.
On the one hand, the economic picture is darkening – with UK GDP shrinking in January, the steel industry hit by US tariffs, and fears of a global trade war gripping the world economy. That’s could make the Bank consider lowering borrowing costs.
On the other hand, prices are rising faster than its target – with inflation running at 3% in January. That’s a compelling reason not to cut the cost of borrowing.
Faced with this situation, the City expects the Bank to leave policy unchanged at noon today.
The money markets indicate there’s just a 4% chance of a rate cut today, to 4.25%, and a 96% likelihood that Bank Rate is unchanged at 4.5% today.
Matthew Ryan, head of market strategy at global financial services firm Ebury, explains:
“On the one hand, the UK economy continues to trundle along at nothing more than a snail’s pace, hamstrung by acute trade uncertainties and fragile business confidence ahead of impending tax hikes.
“Yet, with most of the MPC appearing concerned about nagging upside risks to inflation, particularly stemming from sticky wage growth, we think that the hawks will get their way, with the communications to hint at only a gradual pace of cuts ahead.
The BoE last cut rates in February, when we were surprised that the previously hawkish. BoE policymaker Catherine Mann voted for a jumb reduction in rates.
There could be a similar split today, Ryan suggest:
The vote on rates appears highly unlikely to be unanimous, and we expect the two members that opted for a jumbo rate reduction last time out, Dhingra and Mann, to favour a 25bp cut on Thursday.
The decision comes at noon – before that, the Swiss and Norwegian central banks will make their interest rate announcements too, on a busy week for central bankers.
Last night, officials at the US Federal Reserve cut their US economic growth forecasts and raised projections for price growth as they kept interest rates on hold.
“Uncertainty around the economic outlook has increased,” the central bank said in a statement, as Donald Trump’s attempt to overhaul the global economy with sweeping tariffs sparks concern over inflation and growth.
The agenda
-
7am GMT: ONS releases latest UK labour market report
-
8.30am GMT: Swiss National Bank sets interest rates
-
8.30am GMT: Norway’s Riksbank sets interest rates
-
10am GMT: Eurozone construction output report for January
-
Noon: Bank of England rates decision
-
12.30pm: US weekly initial jobless claims data
-
12.30pm: Philly Fed business conditions index
-
2pm US existing home sales for February
