Expectations are the Bank of England governor Andrew Bailey and his colleagues won’t cut the base rate (Image: Getty)
‘ Budget is adding to pressures on inflation and wage growth in 2025 will struggle to “defy gravity”, experts have said.
Britain’s economy is battling headwinds fuelled by the Chancellor’s financial statement in October in combination with uncertainties around the global economy, analysts have suggested.
Figures from the Office for National Statistics (ONS) released on Tuesday showed regular earnings growth jumped to 5.2% in the three months to October – up from a revised 4.9% in the previous three months and the first time it has risen since August last year.
Earnings growth also outstripped inflation by 3% in the three months to October, with Consumer Prices Index inflation taken into account.
Meanwhile, the ONS said on Wednesday that Consumer Prices Index (CPI) inflation rose to 2.6% in November, up from 2.3% the previous month. This is the highest rate since March and the second rise in two months.
Rising CPI and accelerating wage growth have reinforced expectations among some economists that the Bank of England’s rate-setters will opt to keep rates on hold at 4.75% when they meet on Thursday.
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Rachel Reeves’ borrowing and spending plans have added to inflationary pressures (Image: Getty)
Myron Jobson, Senior Personal Finance analyst for Interactive Investor, said: “This latest inflation reading highlights that the fight against rising prices is far from over.
“Inflationary pressures stemming from measures announced in the Budget, such as heavy borrowing, increased public spending, and uncertainties surrounding President-elect ‘s tariff plans, mean the Bank of England cannot afford to rest easy.”
Trump has threatened to impose new tariffs on goods entering the US from China, Canada and Mexico in a bid to protect jobs in the United States, grow the economy and raise tax revenues. But some experts warn such a move will push up prices for US consumers and disrupt international supply chains.
On the ONS labour market statistics, Jack Kennedy, Senior Economist at Indeed, told Express.co.uk: “Hot wage growth quashes hopes of a near term cut, but the ongoing weakening of the labour market and strong headwinds post-Budget suggest wage growth may struggle to defy gravity into 2025.
“A fading of pay pressures and further labour softening would suggest the Bank may have to shift away from its current gradual stance towards more aggressive rate cuts to support the economy over the coming months.”
Rob Wood, Chief UK Economist at Pantheon Macroeconomics, said the trade-off between weaker growth and still strong inflation pressures mean the Bank’s rate setting Monetary Policy Committee will keep on hold.
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Economists say the Bank will hold Britain’s base rate (Image: Getty)
Gora Suri, economist at PwC UK, said the rise in earnings growth shows inflation pressures remain in the economy. He said: “Despite the considerable disinflation we have seen in the UK economy over the last two years, these underlying inflationary pressures remain.
“This means the Bank of England is highly likely to keep on hold at its next meeting on Thursday, before resuming rate cuts in the new year.”
Professor Sambit Bhattacharyya, Head of Economics at the University of Sussex, told Express.co.uk the ONS jobs figures are indicative of a weak labour market and the short to medium term outlook isn’t positive. But he suggested the BoE should cut rates in a focus on a long-term strategy to shore up investment and consumer demand.
The expert added inflation is also a concern, but he said factors driving inflation are largely external or geopolitical and a rate rise is unlikely to be able to influence the external inflation dynamic.
He said: “An uptick in investment and business activities are likely to increase supply in the medium term which will translate into an inflation reducing effect.”
Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, warned the latest data could be “the calm before the storm”. She said higher employer National Insurance contributions and an increase to the minimum wage from April will push up employment costs for supermarkets who may then pass these on to customers.
Helen Dickinson, Chief Executive at the British Retail Consortium, said on Tuesday that pay growth in the industry was well above the national average at 8.5% in 2024, and up over 25% since 2021.
She added: “The October Budget increases the National Living Wage by a further 6.7%, adding over £2.7billion to retailer wage bills from April 2025, while changes to [the] rate and threshold for employer NI contributions will cost the industry over £2.3bn.
“This could hasten the reduction in retail jobs and particularly the recruitment of part-time roles, which have been falling in recent years.
“Retailers are responding to the changing business landscape, with most saying they will further increase investment in automation and improve worker productivity.
“It is inevitable the Budget will also put pressure on jobs and hours in the coming year, potentially affecting communities all over the UK that rely on retail as a vital provider of entry level, local jobs.”