Market bets tight jobs market could force Christmas rates rise

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Poor pressure on wages and labor shortages are fueling fears that the Bank of England could be forced on interest rates, potentially threatening Britain’s already faltering economic recovery.

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New data from the Office for National Statistics today showed a tight labor market and sparked speculation about an initial rate hike.

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The data shows that job vacancies remain at record levels in the economy despite a rise in national payrolls and a drop in unemployment. Excluding bonuses, wage growth remains high at 6%, although the ONS cautioned that the data was skewed by the pandemic.

A tight labor market and upward pressure on wages mean that workers may continue to demand higher wages in the coming months. Neil Carberry, chief executive of the Recruitment and Employment Confederation, said he was seeing a “Chinese rush” of rising wages in the jobs market.

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In turn, this could feed into more persistent inflationary pressures and blow up the Bank of England’s argument that rising prices are due to “transient” factors such as higher shipping costs.

Paul Dales, UK Chief Economist at Capital, said: “A further strengthening of the labor market in August may cause some members of the Monetary Policy Committee (MPC) to place a higher weight on upside risks to inflation rather than downside risks to economic growth. ” Economics, said. “As such, these figures raise the possibility of a rate hike in the coming months.”

The city is becoming increasingly convinced that inflation will force the central bank to raise interest rates sooner than planned – possibly this year. The bank is trying to avoid raising rates too soon for fear that it could derail the UK recovery.

Market forecasts of when banks will raise rates and how fast have changed in recent weeks, with investors now looking at three rate hikes within a year.

Bank of America extended its forecast yesterday, saying it now expects growth of 15 basis points at its December MPC meeting. It had earlier extended the hike for February 2022.

Michael Saunders, an external member of the MPC, and Hu Pill, the bank’s new chief economist, have fueled speculation of a rate hike in recent days.

Pill told the Treasury Select Committee: “The current strength of inflation proves to be longer-lasting than originally anticipated.”

Saunders told the Sunday Telegraph that it was “appropriate that markets take the earlier path of being tighter than ever in pricing.”

Leith Khalaf, Head of Investment Analysis at AJ Bell, said: “With the market raising interest rates rapidly in recent weeks, the odds of a hike this year are now at two out of three.

“The UK is now looking firmly on the road to higher interest rates. The question is how quickly the central bank gets us there.

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