On December 18, the latest statements and economic data from the European Central Bank and the Bank of England attracted market attention. ECB officials clearly stated that they will gradually reduce interest rates to achieve a 2% inflation target. Meanwhile, UK wage data exceeded market expectations, which could affect the speed and pace of future rate cuts by the Bank of England.
European Central Bank: Gradual Clarity on Rate Cuts
ECB President Christine Lagarde noted in a public speech that if upcoming economic data continues to support the current forecast baseline, the ECB expects to further lower rates to drive economic growth and stabilize inflation at the 2% target level. She stated: "If upcoming data continues to confirm our baseline, then the direction forward is clear, and we anticipate further lowering rates." This statement further reinforced market expectations for the ECB to continue cutting rates.
Additionally, ECB Executive Board member and policy hawk Isabel Schnabel later more explicitly stated that the ECB should continue with gradual rate cuts until rates reach a neutral level. Schnabel emphasized: "We need to remain patient to ensure the pace of policy adjustments aligns with economic changes."
These statements indicate that the ECB has reached an internal consensus to support the weak economy by gradually lowering borrowing costs and alleviating concerns about high inflation.
Bank of England: Wage Growth Influences Rate Cut Path
Meanwhile, the latest data released by the UK Office for National Statistics shows that in the three months ending October, three-month average wage growth in the UK, excluding bonuses, was 5.2%, higher than the market expectation of 5% and the previous 4.8%. Wage growth in the private sector soared to 5.4%, the highest level since the first quarter of this year. This data could significantly impact the Bank of England's monetary policy trajectory.
Despite robust wage growth, other signs of weakness are evident in the UK labor market. Following the announcement of increased social security contributions by employers in the budget at the end of October, employer demand for employees has declined. The data show that UK employers dismissed 35,000 employees in November, and the number of job vacancies is also decreasing. According to the UK Office for National Statistics, in the three months ending November, job vacancies fell by 31,000 to 818,000, though still above the pre-pandemic level of early 2020.
Analysts believe that while some adjustments in the labor market are apparent, strong wage growth may make the Bank of England more cautious in cutting rates to prevent wage-driven inflation from exerting further pressure on the economy.
Policy Outlook: Data Drives Future Path
Overall, both the ECB and the Bank of England show an increased dependency on economic data. The ECB's path to lowering rates is clearer, aiming to stabilize inflation by reducing borrowing costs, while the Bank of England faces the complex balance between strong wage growth and labor market adjustments.
In the future, the market will closely watch upcoming economic data, especially inflation and employment-related indicators. These data will become crucial for both central banks in determining their future policy paths. Investors need to pay close attention to these dynamics to assess the pace of monetary policy adjustments in Europe and the UK.
