The Bank of England looks set for the first quadruple back-to-back interest rate hikes in a quarter of a century, after fresh labour market data pointed to a red-hot jobs market.
City economists said the central bank was now almost certain to raise rates again in May, following hikes at the last three Monetary Policy Committee meetings in December, February and March.
Confidence in a rate rise strengthened as new data pointed to a tight jobs market, with vacancies still rising and pay climbing but failing to keep pace with inflation.
Job openings hit a new record high of 1.28 million in February, the Office for National Statistics said, as the unemployment rate fell to 3.8%.
Declining unemployment was due to a rise in inactivity as more older workers took early retirement or career breaks.
Pay excluding bonuses was up by 4% in February but failed to keep pace with inflation, leaving workers facing a real terms drop in income of 1% between December and February. Inflation data for March, due on Wednesday, will show the problem has only become worse.
Including bonuses, pay rose by 5.4%. That was a 0.4% increase in real terms.
Thomas Pugh, an economist at RSM, said: “The drop in the unemployment rate to 3.8% in February and the rise in pay growth to 5.4% suggests the labour market is continuing to tighten. Combined with soaring inflation, this probably gives the Monetary Policy Committee (MPC) all the justification it needs to raise rates again at its next meeting on May 5.”
Simon French, chief economist at Panmure Gordon, said it would be “very hard for the MPC not to raise rates given they know a big CPI [consumer price inflation] print will come the following week thanks to the energy price cap”.
He expects a 25-basis point increase, which would take the UK interest rate to 1% — its highest level since February 2009.
This probably gives the Monetary Policy Committee (MPC) all the justification it needs to raise rates again at its next meeting on May 5
Another interest rate rise in May would mark the first time rates have risen at four consecutive meetings since 1997.
It would also mark the first time in history that the independent Bank of England has increased rates four times in a row. The first such back-to-back rate hike in 1997 took place when the Treasury still had power over interest rates.
Another increase may help to tame runaway inflation but will cause problems for the Government, which faces a higher interest bill on its debt as interest rates rise.
Chancellor Rishi Sunak said today the labour market report “shows the continued strength of our jobs market.”
Official data on Wednesday is expected to show inflation rose again to 6.7% in March.
The London Chamber of Commerce said that concern about inflation among its membership is now standing at a record high. Two in three businesses now say that increasing costs are their biggest worry.
