Must the BoE now consider larger rate hikes? Fed on course to pause? Oil bounces back

 A truly devastating jobs report for BoE policymakers

It’s not often that you would refer to a jobs report that delivers a drop in unemployment, record employment and a rise in wages as horrible, but that is exactly what the Bank of England will be feeling today.

The central bank has raised interest rates for the last 12 meetings in a row and yet the economy is showing the kind of resilience that few would have anticipated. This creates an enormous headache for the MPC as it desperately wants to avoid crashing the economy in order to weaken the labour market and get wages and inflation down to more sustainable levels but that’s looking increasingly possible at these levels.

A rate hike at the next meeting is now unavoidable – assuming it wasn’t already – but a 50 basis point increase could suggest the BoE is throwing in the towel in trying to deliver 2% inflation and a soft landing for the economy. And the withdrawal of any votes for a pause will be equally important as the scale of the hike – we’ve seen two for four consecutive meetings – ​ and would be another strong sign that the BoE is very concerned.

Is a Fed pause as locked in as markets think?

What the BoE would give to now be in the Fed’s position. Inflation is falling and has been for almost a year, while core inflation is also on the decline even if it stands above 5% which is still too high. But progress is clear and there is plenty of optimism that the trend will continue, enabling the Fed to perhaps not just pause tomorrow – which markets are heavily pricing in – but maybe even bring an end to the tightening cycle altogether.

Not that they’ll be ready to acknowledge that yet but a pause will certainly be a step in the right direction. The BoE will be wondering where they’ve gone so wrong. Having been one of the first out of the traps, they may be the last to cross the finish line.

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