Market News

Borrowing costs rose again yesterday as worries about rising wages and inflation cast fresh doubt over the pace of interest rate cuts this year amid fears of ‘stagflation’.

In another potential setback for Rachel Reeves, official figures today are set to show inflation accelerated last month having hit 2.5 per cent in December.

The Office for National Statistics report comes just a day after separate figures showed private-sector wages were 6.2 per cent higher in the final quarter of 2024 than a year earlier.

It was the biggest increase in a year and underscored why the Bank of England has been cautious about cutting interest rates. The yield on ten-year gilts – a key measure of government borrowing costs – rose above 4.58 per cent.

The Bank’s monetary policy committee (MPC) cut rates only twice last year and again this month – from 4.75 per cent to 4.5 per cent – but it remains unclear how many more reductions will follow.

Thomas Pugh, economist at RSM UK, said: ‘These pay growth numbers will make the MPC nervous.’