BUSINESS LIVE: BoE base price choice looms; Wages develop 5.9%; Yorkshire Water fined £40m

Thomas Pugh, economist at firm RSM UK:

‘Rising employment, a steady unemployment rate and strong wage growth has removed what little chance there was of an interest rate cut this afternoon. The next rate cut will probably come in May, but further rate cuts after that will depend, in part at least, on pay growth slowing.

“There has, so far at least, been no sign of the collapse in employment signalled by most of the labour market surveys.

‘While it would be a stretch to say that the UK labour market was strong, it’s clearly not collapsing. We continue to expect a slight weakening this year as firms press pause on hiring in the wake of the budget, but there are no signs of surging unemployment.

‘However, pay growth remains far too strong for the MPC to relax.

‘We expect wage growth to slow this year as a weakening labour market eases competition and firms try to mitigate the increase in national insurance contributions through slower wage growth.

‘But pay growth has remained stubbornly high, despite the collapse in sentiment. Stubbornly strong pay growth is a big risk to our forecast of three further rate cuts this year.’

Private-sector pay excluding bonuses – a key gauge of domestic inflation pressure for the BoE – rose by 6.1 per cnet the three months to January, compared with the same period a year earlier, marginally slower than an increase of 6.2 per cent in the last three months of 2024, the Office for National Statistics said.

Pay growth across the economy, excluding bonuses, stood at 5.9 per cent, unchanged from the fourth quarter and in-line with forecasts.

Including bonuses, pay was up 5.8 per cent, slowing from 6.1 per cent in January and slightly lower than the 5.9 per cent forecast by economists.

The Bank of England will later today reveal its latest decision on the direction of interest rates, with policymakers set to weigh lacklustre economic growth and fears or resurgent inflation.

Financial markets expect the bank’s Monetary Policy Committee to hold base rate at its current level of 4.5 per cent.

It follows the US Federal Reserve’s decision to keep borrowing costs in the range of 4.25 to 4.50 per cent, as it keeps a watchful eye on inflation in light of US President Donald Trump’s tariff plans.