The UK labour market is showing further signs of weakness, raising expectations of an interest rate cut by the Bank of England next month.
Figures from the Office for National Statistics (ONS) show that annual pay growth slowed to 5% in the three months to May. Meanwhile, unemployment has climbed to 4.7%, the highest rate in four years. Job vacancies have now been falling for three consecutive years and currently stand at 727,000, the lowest level in a decade outside the pandemic period.
The number of people on payrolls dropped by 68,000 between March and May, with a further fall of 41,000 forecast for June. Survey data also suggests that many firms are delaying recruitment or not replacing departing staff.
Some analysts believe that April’s increase in employer National Insurance contributions has made hiring less attractive, adding further pressure to a slowing labour market.
The Bank of England governor, Andrew Bailey, recently told The Times that a softening jobs market could justify larger interest rate cuts. The Bank is widely expected to reduce rates from 4.25% to 4% at its next meeting. However, some commentators have warned against stimulating spending too soon, given ongoing inflationary pressures.
The ONS has urged caution when interpreting some of the figures due to ongoing data collection and accuracy issues.
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