Bank of England expected to leave interest rates on hold; UK unemployment falls – business live

From

22m ago

Introduction: Bank of England interest rate decision today

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK households and businesses could be spared a rise in borrowing costs today, as the British economy creaks under the strain from the Iran war.

The Bank of England is widely expected to leave interest rates unchanged at 3.75% at noon today, after its latest monetary policy committee meeting.

Policymakers at the BoE will try to balance the challenge of containing imported inflation from the Middle East conflict, while avoiding intensifying the squeeze on firms and consumers who have been hit by the rise in energy costs.

With the economy shrinking slightly in April, and inflation lower than forecast in May (we learned yesterday), a hike in borrowing costs appears unnecessary. The City of London money markets indicate there’s a 98% chance that interest rates are left on hold, and just a 2% chance of a rise.

Tomasz Wieladek, chief European macro economist at investment management firm T. Rowe Price, argues that the Bank may not need to tighten monetary policy at all in the coming months.

Monetary policy in the UK appears to be finally working. A prolonged period of restrictive monetary policy has, to a degree, weakened inflation dynamics.

Given the good news on inflation and the recent decline in oil prices, the MPC will likely conclude that no more hikes are necessary to stabilise inflation in the UK.

The agenda

7am BST: UK labour market data

Noon BST: Bank of England interest rate decision

1.30pm BST: US initial jobless claims

1.30pm BST: Philadelphia Fed Manufacturing Index

Key events

20m ago

Pay growth stronger than forecast

22m ago

Introduction: Bank of England interest rate decision today

22m ago

Unemployment rate falls to 4.9%

On the face of it, the latest UK jobs report doesn’t look so bad, says ING economist James Smith:

The unemployment rate ticked down to 4.9%. Payrolled employment rose after three consecutive monthly declines (it increased by a marginal 2000 workers). Average weekly earnings growth was higher than expected.

But the details still look dovish for the Bank of England. And the report is another reminder that the case for higher rates is far from the clear cut.

Take those payroll numbers. April’s atrocious 100,000 fall in employment has been cut in half, after revisions. That’s not a surprise; the latest reading is always prone to change – and usually in an upwards direction. But the newly revised April figure, showing a 53k drop in workers, is still pretty bad. The better May figure should be read in that context – and if you strip out government, private-sector payrolls still fell.

Another encouraging sign in today’s UK jobs report – fewer people fell off company payrolls than first feared in April.

The Office for National Statistics has halved its estimate for payroll losses in April to 53,000, down from its first estimate of a decrease of 100,000.

For May, the ONS estimates payrolls rose by 2,000.

Pay growth stronger than forecast

UK wage growth was stronger than expected in the three months to April, this morning’s labour market data shows.

Basic pay (which excludes bonuses) rose by 3.4% year-on-year in the quarter, while total pay (including bonuses) rose by 4.4%; both measures were unchanged compared with a month earlier.

Average pay rose by 5.1% for the public sector and 2.9% for the private sector. “Public sector pay growth is once again affected by the timing of pay awards varying this year,” the ONS explains.

Unemployment rate falls to 4.9%

Unemployment across Britain has fallen back, as more people either found work or dropped out of the labour market.

The UK unemployment rate dipped to 4.9% in the three three months from February to April, down from 5% a month ago, easing fears that the energy crunch could drive up job losses.

The Office for National Statistics reports that the number of people unemployed dropped by 105,00 in the quarter to 1.764m.

The number of people employed rose by around 100,000 to 34.410m, while the number economically inactive (neither in work nor looking for a job) rose by 137,000 to 9.136m.

ONS director of economic statistics Liz McKeown says:

“The labour market remained broadly stable in the latest quarter, with further softening evident in some measures. Payroll numbers continued to fall over this period, with new recruits at their lowest level in five years. However, overall employment was little changed, with some signs of workers moving into self‑employment.

“Vacancies also continued to fall, further suggesting that firms are becoming more cautious about taking on new staff. The decline has been most persistent among lower‑paying sectors and smaller employers, although the largest fall this quarter was in professional services.

Introduction: Bank of England interest rate decision today

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK households and businesses could be spared a rise in borrowing costs today, as the British economy creaks under the strain from the Iran war.

The Bank of England is widely expected to leave interest rates unchanged at 3.75% at noon today, after its latest monetary policy committee meeting.

Policymakers at the BoE will try to balance the challenge of containing imported inflation from the Middle East conflict, while avoiding intensifying the squeeze on firms and consumers who have been hit by the rise in energy costs.

With the economy shrinking slightly in April, and inflation lower than forecast in May (we learned yesterday), a hike in borrowing costs appears unnecessary. The City of London money markets indicate there’s a 98% chance that interest rates are left on hold, and just a 2% chance of a rise.

Tomasz Wieladek, chief European macro economist at investment management firm T. Rowe Price, argues that the Bank may not need to tighten monetary policy at all in the coming months.

Monetary policy in the UK appears to be finally working. A prolonged period of restrictive monetary policy has, to a degree, weakened inflation dynamics.

Given the good news on inflation and the recent decline in oil prices, the MPC will likely conclude that no more hikes are necessary to stabilise inflation in the UK.

The agenda

7am BST: UK labour market data

Noon BST: Bank of England interest rate decision

1.30pm BST: US initial jobless claims

1.30pm BST: Philadelphia Fed Manufacturing Index