Market report

June interest rate cut ‘likely’ after US jobs data

A rate cut may coincide with the King Charles III bank notes coming into circulation

Markets are pencilling in a June interest rate cut in the US and possibly the first of a series by the Bank of England soon afterwards as new data pointed to a slowing of the world’s biggest economy.

Figures from the US Bureau of Statistics said non-farm payrolls grew by 275,000 in February, beating forecasts of 200,000.

The pound hit a seven-month high against the dollar raising the prospect of an imminent interest rate cut by the Federal Reserve.

While job creation grew, the unemployment rate increasing unexpectedly to 3.9%, from 3.7% in January previously, and monthly hourly earnings expanded by only 0.1%, from 0.6% in the previous month. January’s jobs figures were also revised down sharply from an initial estimate of 375,000 to 229,000.

Nathaniel Casey, investment strategist at Evelyn Partners, said: “Despite today’s stronger than expected job growth, the 12-month average continues to trend downwards, albeit very slowly, highlighting the broad gradual slowdown in job creation.”

The dollar weakened and the pound rose by 0.4% to $1.284, its highest level since last August. Wall Street traders responded enthusiastically to the data, sending the key US indices higher. However, in London the FTSE 100 closed 32.72 points (0.43%) lower at 7,659.74.

Bank of England
The Bank of England could be poised to end monetary tightening (pic: Terry Murden)

Before the data was released, Jerome Powell, chairman of the central bank, said its ratesetters were “not far” from being convinced that interest rates needed to be loosened in the face of weakening inflation.

He told Congress that “inflation is moving sustainably down to 2%”. He added: When we do get that confidence, and we’re not far from it, it will be appropriate to begin to dial back the level of restriction so that we don’t drive the economy into recession.”

Markets now expect a coordinated rate-cutting programme in June, or even in May, involving the Fed, the Bank of England and the European Central Bank. It may coincide with the first King Charles III bank notes being issued.

A cut in interest rates will be a significant moment as it will be the first time that monetary policy has been loosened since the pandemic.

Evelyn Partners said a tick up in the unemployment rate and a deceleration in wage growth should in balance be enough to reassure policy setters that restrictive monetary policy is helping to ease the labour market and slow the economy.

“This should give them confidence to start cutting interest rates during the summer,” it said in a statement.

Andrew Hunter, deputy chief US economist at Capital Economics, said: “Alongside the rise in the unemployment rate to a two-year high and a much weaker rise in wages, there is less reason now to be concerned that renewed labour market strength will drive inflation higher again.

“The decline in the job quits rate to below its pre-pandemic level suggests wage growth will slow a lot further over the coming months.”

BP dock ex-CEO’s pay

BP has clawed back £1.8 million from Bernard Looney, the energy company’s former chief executive who resigned after failing to disclose the full extent of his personal relationships with colleagues.

The sum includes part of Mr Looney’s 2021 and 2022 bonuses that had been deferred, as well as performance-based shares that vest over a three-year period, according to the company’s latest annual report. Looney, 53, also has paid back half of his 2022 bonus, which amounted to £420,000.

In December, BP announced that Looney could have received up to £32.4 million in remuneration.

Royal London

Life insurer and pensions group Royal London has entered the market for corporate pension scheme insurance with a so-called bulk annuity deal for Royal Liver UK pension scheme.

The mutual insurer also said it had transacted a bulk annuity deal with the trustees of the Royal London Group pension scheme, ahead of “intended participation” in the booming bulk annuity market

Royal London, which has operations in Edinbugh and owns the Scottish Life and Scottish Provident brands, reported a 19% rise in 2023 operating profit before tax to £249m.

Royal London CEO Barry O’Dwyer, who joined the company from Standard Life Aberdeen (now Abrdn), described the company’s latest set of results as “amazing” as it bucked the industry trend by posting an increase in net inflows to £4.2 billion from £3.7bn.

However, this was partially offset by lower internal net inflows as more customers accessed their pensions.

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