Stay informed with free updates
Simply sign up to the UK interest rates myFT Digest — delivered directly to your inbox.
The outlook for UK interest rates will hinge on whether wage growth slows as expected over the course of the year, against a backdrop of global economic uncertainty, Bank of England officials said on Tuesday.
Andrew Bailey, BoE governor, said he voted to cut the benchmark rate by a quarter point to 4.25 per cent last month chiefly because the job market had loosened and businesses were expecting to make lower pay awards — with turmoil in global trade policy then tilting his view towards a cut.
“We’ve got a view which is that we will see pay coming down this year,” he told the House of Commons Treasury select committee, adding that the forecast decline would be “crucial” to rate decisions going forwards.
Sarah Breeden, a BoE deputy governor, told MPs she had seen enough evidence of the jobs market weakening to justify her vote for a rate cut, even before factoring in the rising international risks.
But Catherine Mann — who voted to leave rates on hold at 4.5 per cent — said she was concerned both by recent volatility in financial markets, and by an environment in which more volatile inflation could influence behaviour.
If inflation — which hit a 15-month high of 3.5 per cent in April — rose above 4 per cent because of short-term global factors, for example, that was “a threshold that may change consumers’ attitudes”, Mann said.
The BoE’s interest rate cut last month marked the fourth reduction since the summer last year, taking the cost of borrowing to its lowest level since 2023.
But it also revealed a three-way split: a majority of five Monetary Policy Committee members supported the cut, while two favoured a bigger, half-point reduction and two — Mann and chief economist Huw Pill — did not want rates to change.
