Markets See 73% Chance of December Rate Cut as UK Jobless Rate Climbs
Expectations of a Bank of England interest rate cut in December have surged after fresh data showed the UK unemployment rate rising to 5% and wage growth slowing, strengthening the case for monetary easing before year-end.
Money markets now price in a 73.6% probability that the Bank will cut rates to 3.75% next month, with only a 26.4% chance that policymakers will keep borrowing costs unchanged at 4%. Before this morning’s labour market report, the likelihood of a cut stood at 61.5%.
The increase in unemployment came in above both analyst forecasts and the Bank of England’s own projections, prompting economists to argue that the data supports a so-called “Christmas rate cut.”
The jobless rate rose to 5% in the three months to September, compared with the 4.9% forecast by both market watchers and the Bank’s Monetary Policy Committee (MPC).
Sanjay Raja, chief UK economist at Deutsche Bank, said the data highlighted clear signs of cooling in the labour market.
“Today’s data speaks to two things: one, there’s more slack building in the labour market – and perhaps more so than assumed by the MPC in its November projections; and two, pay momentum continues to slow. Both should be encouraging for the MPC,” he said.
He added that while Budget uncertainty may be weighing on hiring plans heading into the fourth quarter, the latest figures “should continue to strengthen the case for a Christmas rate cut.”
