Pay rises ‘obviously good news’ says Number 10, after Bailey warns wages too high

Concerns about the impact of higher rates on households and businesses have led to growing calls for the Bank to start cutting rates.

Around 2.3 million households are expected to renew their mortgages this year at higher interest rates this year, according to the Bank.

MPC member Swati Dhingra, who has repeatedly voted for rates to be held, called for an immediate cut to 5pc.

In the first vote to ease policy since the height of lockdown in 2020, Ms Dhingra said there were already signs that the economy was “less resilient” than previously thought.

However, policymakers noted that wage growth remained elevated, and suggested that bets on four rate cuts this year to 4.25pc were too aggressive and would not keep a lid on inflation.

Pay deals are expected to average 5.4pc this year, according to a Bank survey, with the jobs market expected to remain “tight”.

Analysts said policymakers were likely to wait for more decisive evidence before loosening policy. “The next move looks like being down,” said Elizabeth Martins at HSBC. “But the Bank seems in no hurry to deliver a cut just yet.”

The Bank said a big drop in energy bills would see inflation halve from 4pc in December to 2pc in the second quarter of 2024.

However, the MPC noted that this drop would not be sustained, with some underlying measures of inflation, particularly in services, remaining too high. Inflation is not expected to sustainably fall back to the Bank’s 2pc target until the end of 2026.

Two MPC members, Jonathan Haskel and Catherine Mann, continued to vote for rates to rise to 5.5pc, leaving the MPC in a three-way split.

While the economy is expected to have escaped a recession at the end of last year, the Bank reiterated that growth was likely to remain weak for the next three years, with annual output averaging less than 1pc until 2026.