Bank of England faces interest rates dilemma as job market cools

The weakness in the broader economy started to hit the UK jobs market, with the latest data bulletin from the Office for National Statistics (ONS) showing the unemployment rate has risen to an estimated 4.2%.

There are now around 850,000 additional working-age people out of work, who are no longer seeking work or are unable to start work, than before the COVID-19 pandemic began.

The unemployment-to-vacancies ratio, a key measure for the Bank of England, ticked up to 1.6 as unemployment increased and vacancies fell further.

Meanwhile, pay growth was still stubbornly high — at 6% — but continues to fall to more reasonable levels.

Despite pay growth remaining high, the statistics pointing to a cooling economy are another data point for the Bank of England to consider in its next interest rates meeting, and could prove a promising signal for rate watchers hoping for an earlier cut.

"High pay growth remains a key barrier to base rate cuts as the Bank of England expects it is contributing to inflation persistence," said Jake Finney, economist at PwC UK. "However, the one upside is that households could see significant real wage growth on an annual basis this year for the first time since 2021."

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Bets have been on for a June base rate cut as the market now looks to consumer price inflation figures on Wednesday.

In February, the headline inflation rate in the UK eased to 3.4% year-on-year from 4% previously — below market expectations of 3.5%. It was the lowest rate since September 2021. The annual core inflation rate fell to 4.5% from 5.1% previously, beneath market expectations of 4.6%.

March numbers are expected to be lower still, according to economists at IG.

Watch: Wall St ends lower as inflation data dims rate cut hopes

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