UK interest rate cut expected in December after UK unemployment rises to 5%; FTSE 100 hits record high – business live | Business

Several economists are predicting the Bank of England could cut interest rates as soon as December, following this morning’s weak jobs report.

And looking further ahead, the money markets are now indicating they expect 65 basis points of BoE rate cuts by the end of next year, up from 55 bps on Monday. That means two quarter-point cuts by December 2026 are fully priced in, with a third now more likely.

Suren Thiru, economics director at ICAEW (the Institute of Chartered Accountants in England and Wales), reckons the odds of a rate cut next month have risen, now that unemployment has jumped to 5% and wage growth has slowed.

“These figures suggest that the UK’s labour market is suffering from pre-Budget jitters, as businesses already weakened by April’s rise in national insurance look to cut recruitment further in anticipation of another difficult Budget.

“This weakening in wage growth is likely to accelerate over the winter as the downward pressure from an ailing economy, significant staffing costs and more job losses increasingly restrains pay awards.

“The jobs market could bear the brunt of Budget tax rises as weaker customer demand, amid a possible income tax hike and increasing costs on business, may mean higher unemployment than the Bank of England currently predicts.

“These underwhelming figures add credence to the more dovish tilt to last week’s policy decision and the current rate at which the labour market is loosening notably increases the chances of a December interest rate cut.”

Richard Carter, head of fixed interest research at Quilter Cheviot, points out that BoE governor Andrew Bailey is the ‘swing voter’ on its Monetary Policy Committee, who could be swayed into creating a majority for a cut:

“An early Christmas present could come in the form of an interest rate cut from the Bank of England following a rise in unemployment and a softening in wage growth. The monetary policy committee had a tight 5-4 split on whether to hold or cut rates at last week’s meeting, with Andrew Bailey’s deciding vote erring on the side of caution.

“Today’s figures from the Office for National Statistics show wage growth pressures, albeit still relatively high, are slowly easing. Annual growth in regular earnings excluding bonuses saw a decline to 4.6% compared to 4.7% last month, and total earnings including bonuses fell to 4.8% compared to 5%. Any further signs of easing in the next labour market print could sway a few more on the committee to cut on the 18th December.

Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK, points out that problems at the Office for National Statistics do make today’s data somewhat unreliable….

“A rise in the unemployment rate to 5.0% in September, the highest level since the pandemic, and a further slowing in private sector pay growth throws the door wide open to a December rate cut – as long as the budget is as deflationary as the Chancellor hinted at last week.

“Overall, the labour market appears to still be weakening with the unemployment rate ticking up and employment falling on both the LFS and payrolls measures. Admittedly, the unemployment rate is being driven up by an erratic looking jump in unemployment on the single month figures. Even though the ONS has made improvements to the Labour Force Survey, which is where the official measures of employment statistics are derived from, it continues to be distorted by a low response rate making it less reliable than in the past.