Pay rises for public sector workers above inflation ‘may scare MPC members’ for a rate cut

Following Chancellor Rachel Reeves’ statement on Monday afternoon, Newspage asked experts whether it could make a Bank of England rate cut on Thursday more or less likely.

Andrew Montlake, Managing Director at Coreco said,  “The odds of a rate cut this week rested on fine margins as it was, but the latest statement from the Chancellor and the public sector pay awards may well cause the Bank of England to stay their hand further.

“Whilst the pay rises themselves are deserved, there is no doubt that they can be seen as inflationary and the type of data that affects an already cautious Bank of England.

“The movement of the markets will be meticulously watched in the coming days, with every hope that a new era of transparency over the public finances calms rather than irritates the market further.”

Stephen Perkins, Managing Director at Yellow Brick Mortgages said, “Pay rises for public sector workers above inflation and the offer to junior doctors, though welcome, may scare MPC members that inflation could soon bounce back.

Q With the Government all but declaring the country bankrupt, it certainly makes it more challenging for the Bank of England to immediately reduce the base rate on Thursday.”

Rohit Kohli, Director at The Mortgage Stop said, “Rachel Reeves has this afternoon handed the Monetary Policy Committee the reason they needed to not take action on interest rates when they meet later this week.

“With understandable inflation-beating pay rises across the public sector, combined with the abysmal state of the country’s finances, we can only hope that this doesn’t spook the markets and we see lenders stop cutting rates and start hiking them again.”

Craig Fish, Director at Lodestone Mortgages & Protection: “A rate cut was already off the cards on Thursday despite what Rachel Reeves said. Whether her statements were true or political point scoring, let’s hope the markets don’t react too much, and that a rate cut can still happen in September.

“Public sector pay rises have the potential to be inflationary, which could give the Bank of England pause for thought.”