A top Bank of England official has played down the chances of a string of interest rate cuts despite mounting job losses.
Just hours after official figures showed unemployment at a four-year high, the central bank’s chief economist Huw Pill said he was still worried about stubbornly above-target inflation.
As such, he warned that interest rates may need to stay higher than expected on financial markets, in what would be a financial blow to millions of households and businesses hoping for lower borrowing costs.
The Bank cut rates from 4.5 per cent to 4.25 per cent last week – the fourth reduction since August – and investors are betting on two more by the end of the year. That would take rates to 3.75 per cent.
But Pill, who voted against last week’s cut by the Monetary Policy Committee, warned of echoes of past inflation crises as wages continue to rise strongly following a jump in prices over the past few years.
He said it may be hard to return inflation to the 2 per cent target – from the current level of 2.6 per cent – and the Bank may be forced into ‘somewhat more aggressive or persistent’ action on rates.
Cautious: The Bank of England’s chief economist Huw Pill (pictured) said he was still worried about stubbornly above-target inflation
The comments came after Office for National Statistics (ONS) figures raised fresh concerns over the health of the economy as business is battered by Labour’s £25billion National Insurance jobs tax, an inflation-busting rise in the minimum wage and £5billion of extra red tape regarding workers’ rights.
The ONS revealed that unemployment has risen to a four-year high of 4.5 per cent while more than 100,000 jobs have been lost in the past three months.
Vacancies fell at the fastest rate for more than a year as firms slammed the brakes on hiring.
While this has hit wage growth, average weekly earnings between January and March were still 5.6 per cent higher than a year earlier.
Pill is not alone in tempering expectations of interest rate cuts. Clare Lombardelli, one of the Bank’s deputy governors, on Monday said ‘caution remains appropriate’.
Suren Thiru, economics director at the ICAEW accountancy trade group, warned ‘more difficult times lie ahead for the jobs market with sinking business confidence and rising employment costs likely to drive a modest rise in unemployment’.
But he added: ‘This growing softness in the labour market is unlikely to be sufficient to persuade rate setters to depart from their current approach to gradually cutting interest rates, given lingering concerns over inflation and heightened global uncertainty.’
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
InvestEngine
InvestEngine
Account and trading fee-free ETF investing
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
This article was originally published by a www.dailymail.co.uk . Read the Original article here. .