The Bank of England has signalled a weakening labour market could yet trump rising global challenges to allow for more interest rate cuts in the near term.
Policymakers on the nine-member monetary policy committee (MPC) voted 7-3 to maintain Bank rate at 4.25%.
There was greater support than was expected for a cut.
The Bank had previously signalled that a majority on the committee were cautious about the effects of global instability – especially the on-off US trade war.
Money latest: What interest rate decision means for your money
But the minutes of the Bank’s meeting showed there was a greater focus on a rising jobless rate and evidence that employers are shedding jobs – indicating it had dominated the meeting.
It acknowledged, however, that there were potential challenges from the on-off US trade war and as a result of the Israel-Iran conflict.
The barrage of warheads has already resulted in double-digit percentage spikes to oil and natural gas prices in the space of a week.
“Interest rates remain on a gradual downward path,” governor Andrew Bailey said, while adding that there was no pre-set path.
“The world is highly unpredictable. In the UK we are seeing signs of softening in the labour market. We will be looking carefully at the extent to which those signs feed through to consumer price inflation,” he added.
The Bank maintained its core message that it would take a “gradual” and “careful” approach.
“Energy prices had risen owing to an escalation of the conflict in the Middle East. The committee would remain vigilant about these developments and their potential impact on the UK economy,” the Bank said.
The rise in the UK’s jobless rate, along with recent data on payrolled employment, has been linked to a business backlash against budget measures, which kicked in in April, that saw employer national insurance contributions and minimum pay demands rise.
While a weaker labour market, including a fall in vacancies, could allow room for…
