Bank set to leave rates on hold

Mixed signals from jobs and earnings data yesterday reinforced the impression that UK interest rates are at or very near their peak, sending the pound crashing to a six-year low against the dollar.

Despite an increase in the pace at which unemployment is falling, earnings growth is starting to ease, according to official data published by the office for national statistics.

City analysts said the favourable combination suggested there was no immediate danger of the labour market overheating, which would probably persuade the Bank of England's monetary policy committee to leave rates on hold again next month.

Minutes of this month's meeting, published yesterday, showed all nine committee members voted for unchanged rates, influenced by the deflationary impact of the strength of sterling against the euro and evidence that economic growth may be slowing down.

The ONS figures showed the jobless total falling on both measures, with the International Labour Organisation definition falling by 20,000 in the past three months to 1,713,000 and the claimant count down by 28,800 in April to a 20-year low of 1,111,800.

The monthly drop of the claimant count was much bigger than the 16,500 average fall over the past three months and suggested that the labour market may be tightening.

However, average earnings growth over the latest three months eased to 5.8%, down 0.2% points from February, as millennium-related payments began to drop out of the data.

ONS officials said the figures were still being distorted by the millennium effect, holding out the prospect of further reductions of earnings growth in the months ahead - although they noted that bonus payments in financial services remained high.

The Treasury warned there was a continued need for responsibility in wage bargaining across the public and private sectors to ensure continued economic stability and growth.

Philip Shaw, of Investec, said the jobs figures should offer some comfort to the MPC but that it was still too early to conclude rates had peaked.

With the pound likely to remain strong against the euro in the short term, the MPC would not be in a "tearing hurry" to move again. Any further increases in borrowing cost would be small, he added.