UK households have kicked fears of an interest rate rise this year into the long grass, despite official figures showing unemployment at its lowest for a decade.
The number of households expecting the Bank of England to raise its record-low interest rates over the next 12 months has fallen to its lowest in more than two years amid near-zero inflation and growth fears, according to Markit, the financial data firm.
Its snapshot showed that fewer than half of respondents expect the Bank’s Monetary Policy Committee to raise rates before February 2017 – down from 71 per cent in November and the lowest since October 2013.
The findings came as the Office for National Statistics data showed an unemployment rate of 5.1 per cent for the three months to December – slightly above the 5 per cent expected, but still at its lowest level since 2005.
But crucially for the Bank’s policymakers, wages have failed to take off despite the strong jobs market and overall annual pay growth slowed to 1.9 per cent over the quarter, its weakest since February last year. The total number of people in work reached a record 31.42 million.
Nick Palmer, a statistician at the ONS, said: “While the employment rate continues to hit new highs and there are more job vacancies than ever previously recorded, earnings growth remains subdued.”
Although wages (stripping out bonuses) edged higher, the economy is short of reaching the Bank’s criteria for rate rises, including above-trend growth for the economy and rising core inflation. The Bank’s latest Inflation Report also predicted annual wage growth of 3 per cent this year, well above today’s level.
January figures meanwhile show inflation of just 0.3 per cent – well below the Bank’s 2 per cent target – while the central bank expects inflation to stay below 1 per cent for the rest of the year. Few economists expect the BoE to raise rates before late this year at the earliest, while financial markets are not pricing in a rate rise until 2019.
Markit’s household finance index suggests consumer demand should remain robust, although concerns over job security persist. But experts also warned that wage pressure could quickly return.
ING’s James Knightley said: “The underlying strength of the labour market means that it is only a matter of time before wages start to pick up more meaningfully again.”
Berenberg’s Kallum Pickering added: “With such a strong level of employment, there is likely to be only marginal slack left in the labour market.”Reuse content