Financial markets had already expected the Bank’s Monetary Policy Committee (MPC) to reduce rates from 4.25 per cent to 4 per cent next month, but the latest figures make this more likely.
This is because high interest rates can weigh down the economy, and exacerbate problems with employment.
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Interest rates falling in August will not have a huge impact on most rates for fixed mortgages because lenders have already priced a cut in, but it will mean those on tracker and variable deals see their costs fall.
“I’m projecting two cuts this year, August and November, prompted especially by weakening labour market and lower pay growth.”
Responding to Thursday’s data, he said: “For the MPC, despite the bump higher in inflation, the loosening in labour market should give the Bank reason to proceed with a gradual dial down of restrictive policy.
Forecaster Pantheon Macroeconomics said in a note that although it thought the Bank should keep inflation on hold, it now believed it would cut rates in August.”There is probably just enough in the labour market data to push for an insurance cut,” it said.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “The Bank of England was hoping for bad news from the labour market, and it got what it wanted: wage growth has slowed and unemployment has risen again.
Just days ago, the Governor of the Bank of England Andrew Bailey said that the Bank was prepared to make larger interest rate cuts if it sees that the job market is slowing.
“Pay growth fell again in both cash and real terms, but both measures remain relatively strong by historic standards.”
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