Updated

Updated · ING Think · Aug 18

Bank of England Seen Holding Rates Until 2027 as UK Private Pay Growth Lags at 2.8%

Updated

Updated · ING Think · Aug 18

Bank of England Seen Holding Rates Until 2027 as UK Private Pay Growth Lags at 2.8%

Q: Could a sudden Middle East crisis force the Bank of England to abandon its 2027 rate cut plans entirely?

Yes—but only if the shock is large and persistent enough to keep inflation elevated for much longer than markets now expect. James Smith’s base case rests on a cooling UK labour market: vacancies have fallen to roughly 707,000-712,000, unemployment has risen to around 4.9%-5.0%, payroll employment has been weakening, and private-sector pay growth has slowed to about 2.8%-2.9%. That backdrop argues against more tightening and supports the idea that the Bank of England can eventually cut rates, including in 2027. A sudden Middle East crisis would matter if it caused a sustained jump in oil and gas prices, especially through a major disruption to flows such as via the Strait of Hormuz. In that case, UK inflation could rise again through higher fuel, utility and transport costs. The key issue for the BoE would be whether that shock stayed a one-off price hit or started feeding into wages, inflation expectations and broader pricing behaviour. Right now, softer hiring, weaker vacancies and easing private pay suggest those “second-round” effects are less likely than when the labour market was tight. That means the BoE would more likely delay or reduce rate cuts rather than abandon them entirely. To scrap 2027 cuts altogether, the Bank would probably need evidence of a severe, prolonged energy shock that keeps core inflation sticky and prevents wage pressures from easing. Without that, the weaker domestic economy still points toward eventual easing, even if the timetable slips.

3 articles · Updated · ING Think · Aug 18

Spring 2027 is now seen as the earliest point for Bank of England easing, with at least two rate cuts expected next year rather than any 2026 hike.
Private-sector hiring remains weak and wage pressure subdued: payroll growth is running at 1.1% on a three-month annualised basis, while private pay growth trails government pay at 2.8% versus 6.1%.
Consumer-facing sectors such as hospitality and retail are still shedding jobs after last year's tax and minimum-wage increases, and most hiring surveys show little sign of a near-term rebound.
Vacancies are still falling and remain below pre-Covid levels, reinforcing a broader picture of a cooling labour market despite tentative signs from recent GDP data that the economy may be picking up.
A severe, persistent energy-price spike is the main risk to that outlook; absent that, weak jobs data leave the BoE with little reason to tighten before resuming cuts in 2027.