UK businesses are adjusting expectations for wage growth downwards, with a projected average increase of 4.9% over the next year, a decrease from 5.1% in January, according to a recent Bank of England survey. This marks the first dip below 5% since May 2022, amidst observations that services inflation continues to outpace overall price growth, having slightly risen to 6.5% in January.

Economists and policymakers are paying close attention to these developments, with Tomasz Wieladek, chief European economist at T Rowe Price, calling the drop in wage inflation expectations “encouraging.” Despite this, the Bank of England remains cautious, opting to wait for further evidence of easing wage growth before considering interest rate cuts. Employment growth expectations also show a decline, pointing to a broader economic slowdown in the UK.

In fiscal policy news, Chancellor Jeremy Hunt has announced a significant reduction in personal taxes, marking the lowest level since 1975. A 2p cut in national insurance is expected to save the average worker £450 a year, potentially boosting the labour supply by the equivalent of 98,000 full-time workers by 2028-29. Despite these savings, the freezing of income tax thresholds could offset gains for some taxpayers. The cost of the cut is projected at £10.5 billion annually but is anticipated to positively affect employment levels.

The UK housing market is showing signs of change, with London house prices experiencing a 1.5% annual growth, the first since January, raising the average house price in the capital to £536,996. This contrasts with a slight 0.4% increase in the UK average house price to £291,699. While Chancellor Hunt’s recent Budget introduced property tax measures aimed at energising the market, challenges such as affordability and limited housing supply persist. Despite regional disparities in growth rates, there is a cautious optimism regarding the market’s recovery in the upcoming months.