No Interest Rate Cut This Summer’ after bad news from government

Any lingering hope of a pre-election interest rate cut by the Bank of England has been hurt by the government’s Office for National Statistics (ONS) data showing wages rising at 6% annually over the last quarter. 

Economists were expecting a rise because of an increase in the National Living Wage in April. For those aged 21 and over, it rose to £11.44 an hour, up 9.8% from last year.

The data will be studied by the Bank of England next week when it meets to decide on the timing of its first interest rate cut since the start of the pandemic.

Newspage asked mortgage industry figures for their response - and they almost universally believe it pushes back any Bank of England rate cut.

Michelle Lawson, director at Lawson Financial, says: “The wage growth data published today may be good for the pocket but it’s bad for inflation, and bad for borrowers. Sticky wage growth could see that first cut from the Bank of England prove as elusive as the British summer.”

Simon Bridgland, director at Release Freedom, sees it this way: “That first rate cut is proving a shimmering mirage. We can see it in the distance but is it real? With wage growth holding firm as it did in the first quarter, and unemployment pressing on the government’s coffers, a cut to Bank Rate won’t be happening yet. The election is likely to further exasperate any hope of a base rate reduction until much later in the year.”

And Craig Fish, director at Lodestone Mortgages & Protection, adds: “This has certainly thrown a cat among the pigeons, and it looks like the slim chance of a rate cut in June might just have got a little slimmer. However, it’s not completely off the cards. Wage growth is normally something to be really pleased about, but it still doesn’t feel like we have more money in our pockets due to massively increased mortgage and rent costs. It’s paradoxical that the higher wage growth we wish for is the same thing that is stopping us from getting the other thing we all want, lower interest rates.”

Ranald Mitchell, director at Charwin Private Clients, states: “Wage growth has been outpacing inflation for several months, becoming an increasingly significant issue. While this could signal the final phase of the current adjustment, if it doesn’t slow down soon, interest rates are likely to remain high for a longer period.”

And Katy Eatenton of Lifetime Wealth Management, says: “Yet another reason for the Bank of England to keep the base rate steady. This year is rapidly becoming as uninspiring for borrowers as last year was. Luckily, the UK is nothing if not resilient and the market is still moving and holding up its own.”

Meanwhile there’s been a significant increase in mortgage arrears. 

The Bank of England reports that the value of outstanding mortgage balances with arrears increased by 4.2% from the previous quarter, to £21.3 billion, and the total is now 44.5% higher than a year earlier.