Bank prepares for two more interest rate cuts this year amid cooling wage growth

Cooling wage growth is likely to pave the way for two more interest rate cuts this year.

Average weekly earnings in the three months to July were 5.1 per cent higher than a year earlier, according to the Office for National Statistics (ONS).

This was the lowest increase in two years and marks a marked slowdown compared to July last year, when wages grew by 7.8 percent.

Experts said this should be enough to persuade the Bank of England to cut rates further this year, after a quarter-point reduction from 5.25 percent to 5 percent in August.

Ashley Webb, UK economist at Capital Economics, said: “The Bank of England will welcome the further easing in wage growth as a sign that labour market conditions are continuing to cool.”

However, few expect the Bank to cut again when its rate-setting Monetary Policy Committee meets next week. Instead, markets are betting on a quarter-point cut in November and another in December, taking rates to 4.5%.

The slowdown in wages is less damaging to workers’ household finances than it might have been, because inflation has slowed sharply. Stripping out the impact of inflation, wages are rising by 3%, close to their three-year highs.

And yesterday’s figures also revealed a more optimistic picture for the wider labour market, further giving the lie to Labour’s much-derided claim that it has inherited the worst economic situation since the Second World War.

The ONS said unemployment fell to 4.1 percent, the lowest level since the three months to January.

And employers added 265,000 additional jobs in the three-month period, much higher than the 123,000 economists had expected.

Kallum Pickering, chief economist at brokerage Peel Hunt, said: “This is a solid report on the labour market.”

The ONS figures also revealed a welcome decline in the number of working-age people classed as economically inactive (meaning they are neither working nor looking for work) from 9.4 million to 9.3 million.

However, the staggering figure is still close to record levels and represents more than a fifth of people aged 16 to 64.

This includes those on long-term sick leave, which is also close to record levels but has declined for the third consecutive month, to just under 2.8 million.

Meanwhile, the number of job vacancies fell by 42,000 to 857,000 in the three months to August, the lowest level since June 2021 and the 26th month of decline.

More data on the economy’s progress will be revealed today when the ONS publishes monthly growth data for July.