Top economists at the Bank of England may have to reconsider their positions on monetary policy ahead of tomorrow's announcement, as data today showed disappointing UK wage growth.
The Bank's Monetary Policy Committee (MPC) has been split on whether to hold or hike interest rates, which are currently at the historic low of 0.25 per cent.
Two members of the MPC have already confirmed their intention to propose a hike, while there was talk of chief economist Andy Haldane shifting to that camp.
But today's wage data, which showed annual earnings growth was stuck at 2.1 per cent and missed consensus expectations of 2.3 per cent, may have put the dampers on more hawkish views.
Taken alongside inflation, which hit 2.9 per cent in August, wage growth is still negative. “Though raising rates would in theory help curb inflation, the Bank of England likely won’t want to put any more pressure on already struggling households,” said Connor Campbell of spread better SpreadEx.
However, the jobs figures released today also showed unemployment was at its lowest since 1975 at 4.3 per cent. This could indicate that a rate hike might be on the horizon.
Howard Archer, chief economic adviser at EY, added:
It is odds-on that the Bank of England will keep interest rates at 0.25 per cent on Thursday after the September MPC meeting. However, the MPC will likely warn that any renewed sterling weakness will increase inflation risks and could prompt an interest rate hike sooner rather than later.
The MPC meeting will be the first since Sir David Ramsden, an expected moderate, joined to replace Charlotte Hogg.
Here's how City A.M.'s Shadow MPC voted.
Seven in favour of holding policy, two in favour of hiking.
This month's guest chair: Ruth Gregory, Capital Economics
HOLD Growth still appears too sluggish to warrant a rate hike. While the consumer slowdown has gathered pace, the corporate and external sectors have shown little sign of providing any offset. That said, the current emergency levels of policy support may not be needed for too much longer. The unemployment rate has continued to edge down and if business investment and export volumes pick up as the surveys suggest, this will provide reassurance that the economy is strong enough to weather a gradual normalisation of monetary policy.
Melanie Baker, Morgan Stanley
HOLD The labour market is strong but GDP growth is sluggish, the inflation overshoot is largely the result of external factors and risk of an abrupt, disruptive Brexit remains.
Kallum Pickering, Berenberg
HIKE 25 basis points. Growth is picking up toward its potential rate. Meanwhile, underlying inflationary pressures are building. A modestly tighter policy setting can ensure inflation expectations remain well anchored.
Adam Chester, Lloyds Bank Commercial Bank
HOLD Interest rates should be left on hold for now, as Brexit uncertainty continues to trump inflation concerns. This may change if rising prices start feeding through to wages.
Vicky Pryce, Centre for Economics and Business Research
HOLD Inflation has picked up again and manufacturing is finally rising but real incomes are increasingly under pressure and forecasts for next year are being revised downwards amid Brexit uncertainty.
Simon Ward, Janus Henderson Investors
HIKE Raise Bank rate by a quarter point and close the term funding scheme. Core inflation has risen further, growth is holding up and the labour market is still tightening, partly reflecting lower EU immigration.
Mike Bell, JP Morgan Asset Management
HOLD UK consumer confidence is weak, the Royal Institution of Chartered Surveyors housing market survey is deteriorating and uncertainty around the outcome of the Brexit negotiations remains high.
Simon French, Panmure Gordon
HOLD There are sufficient indicators of weakness in the UK economy, particularly within the construction sector and amongst business investment, to proceed with caution. None of the current inflation pressures would be mitigated by higher interest rates at this stage.
Tej Parikh, Institute of Directors
HOLD While inflation is expected to peak soon, the historically low base rate also offers much-needed support for squeezed households and businesses at a time when economic confidence is shaky.