Chris Cheverall, head of UK at CMC Markets, said: “What’s striking is that a weaker labour market would normally give the Bank of England more room to think about lower rates. But that isn’t the story markets are trading at the moment. Energy prices are higher, gilt yields are up and financial conditions are tightening anyway.
“The Bank doesn’t actually have to raise rates for households and businesses to feel the squeeze. If government borrowing costs stay elevated and that feeds through into mortgages and wider financing, the market is effectively doing some of the tightening for the MPC.
“That leaves the UK in a difficult position, with growth softening, the labour market weakening, but the inflation risk not going away. It is that combination, rather than any single data point, that markets need to watch.”
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