When will the Bank of England cut interest rates? Starting salary growth slows to its weakest since July 2020

Expectations for looming interest rate cuts were boosted on Monday after research showed a slump in new starter salary growth.

Salaries for new full-time workers rose at their weakest rate in over three years in March, while temp wages increased at their slowest pace in four months, according to a report from KPMG and the Recruitment and Employment Federation. 

High wage growth has been keenly watched by the Bank of England, which has repeatedly warned of the potential for a wage-price spiral to inhibit its fight against inflation over the last 18 months. 

The Bank of England held the base rate at 5.25% in March for a fifth time in a row

The KPMG and REC report also found that permanent UK staff appointments have contracted every month for the last year-and-a-half, with surveyed recruiters highlighting an ‘uncertain economic outlook and ongoing recruitment freezes’.  

Budget constraints also reportedly weighed on temp billings during March, which fell to the steepest degree since July 2020, according to the report. 

Neil Carberry, chief executive of the REC, said: ‘Today’s data shows the economy in a holding pattern waiting for inflation and interest rates to ease, so that firms can get to investing.

‘The decline in permanent placements has been steady for some months now, with temporary recruitment still robust, if falling back from the record highs of 2022/3. Employers appear to be leaning on temporary work while they are uncertain about the path of the economy.

‘The data here should support a decision by the Bank of England’s Monetary Policy Committee to loosen its grip on growth in the near-term future. Pay growth has slowed significantly, and is now below the survey’s long-term average for new permanent roles.’

The most recent MPC meeting in March saw the BoE once again hold interest rates to 5.25 per cent.

That decision marked its fifth pause in a row after 14 consecutive base rate hikes since December 2021.   

The BoE last month hinted that base rate could fall in the next few months, with the next meeting taking place on 9 May.

The March meeting saw one member of the MPC vote for a rate cut, while all others voted for a pause. This marked a significant shift from the previous meeting when two members wanted further rate hikes. 

David Morrison, senior market analyst at Trade Nation, told This Is Money that this shift had opened up a path to the first rate cut coming as soon as the June meeting.

He said: ‘The consensus expectation is that the Bank will cut rates by 25 basis points this June [to 5 per cent], and then make another 50 basis points worth of cuts by the end of the year.

‘If so, then that would take the bank rate down to 4.5 per cent, which would be its lowest level since May 2023.’ 

Inflation reached a peak of 11.1 per cent in October 2022, but has since fallen to 3.4 per cent as of February.

Victoria Scholar, head of investment at Interactive Investor said the central bank will be paying close attention to the latest inflation and wage data published later in the month.

The bank will be looking for clues ‘into the strength of lingering price pressures in the economy,’ she added, but will be keen to avoid raising rates too quickly.

Scholar said: ‘The Bank of England is still concerned about services inflation which is running hot well as wage growth which remains high. Both could push up domestic price pressures, which is why the central bank is taking its time before cutting rates.  

‘Markets expect around a 75 per cent chance of the first Bank of England rate cut in June with an outside 20 per cent chance of a cut in May.

‘However if April’s inflation data comes in hotter-than-anticipated, then the central bank could push back the first cut of this cycle to August or possibly even later. 

Analysts at UBS Global Research think the BoE will wait until August, having pushed back its forecast from May last month.

‘Markets are pricing in around three rate cuts by the end of the year, with further cuts in 2025, thanks to the steady downtrend in the inflation data.

‘Inflation is expected to drop below the 2 per cent target in the second quarter of this year, towards 1.5 per cent by June.’ 

This post first appeared on Dailymail.co.uk