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Data this week unlikely to convince Bank of England to cut interest rates soon

European markets moved higher on Tuesday as the IMF lifted its outlook for growth in the world economy (Victoria Jones/PA) (PA Wire)
European markets moved higher on Tuesday as the IMF lifted its outlook for growth in the world economy (Victoria Jones/PA) (PA Wire)

Official data published this week will offer crucial early evidence on whether the UK is on its way out of recession — and guidance for when the Bank of England might think about cutting interest rates.

Tomorrow, the Office for National Statistics will reveal the latest UK jobs data.

The country’s unemployment rate has remained near historic lows, even as GDP data suggests the UK entered recession at the end of last year, in an unusual divergence. But some economists and commentators have taken note of the UK’s high levels of economically inactive people, including the long-term sick, who are not counted in the unemployment rate as they are not looking for work. Rather than the normal recession pattern of many people looking for work, it has been vacancies that have been at elevated levels during the current recession.

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The unemployment rate is expected to hold steady at 3.8%.

Earnings data, also published alongside jobs figures, will be especially closely watched, as the Bank of England has warned that wages are still rising too quickly to bring inflation under control.

Francesco Pesole at Dutch bank ING said: “Wage growth figures – especially in the private sector – will be watched very closely as they now represent the second most important input for the Bank of England after services inflation.”

A Bloomberg survey of economists suggests that the Bank will still be dissatisfied as wage growth is expected to remain at 6.2%. That is likely to mean interest rate cuts won’t come soon.

Then on Wednesday, January GDP figures will be published. Economists are increasingly confident that the UK is already out of its technical recession, with the economy likely to have grown in the first quarter of 2024, though this can’t be confirmed until official figures for the first quarter are published in May.

A survey of economists for Refinitiv predicts that the figures will show the UK economy grew by 0.2% in January. A return to growth is likely to again discourage rate cuts.

Matthew Ryan, Head of Market Strategy at global financial services firm Ebury, said: “As things stand now, markets are not pricing in a full chance of a cut until August, a relatively hawkish stance that is providing solid support for sterling.”