Sluggish Wage Growth Persists Amidst Persistent Job Losses in Retail and Hospitality Sectors
UK Labour Market Slows Down, BoE Considers Further Interest Rate Cuts
The Bank of England (BoE) is contemplating further interest rate cuts due to a weakening labour market in the UK, as indicated by slowing wage growth and falling job vacancies.
In the three months leading up to June, the rate of average weekly earnings growth in the UK slowed to 4.6%, down from 5%. This slowdown in wage growth is reducing inflationary pressures, as it suggests less upward pressure on consumer prices. The number of employees on payroll has decreased in ten of the last twelve months, further evidence of a cooling labour market.
The weakening labour market is also demonstrated by the falling number of job vacancies. For the 37th consecutive period, the number of job vacancies has decreased, and this decline is seen in 16 of the 18 industry sectors. The falls in payroll numbers are concentrated in the hospitality and retail industries, sectors that are traditionally sensitive to economic fluctuations.
Despite the slowing wage growth and falling job vacancies, inflation stood at 3.6% in June, remaining above the BoE's target of 2%. This persistent inflation complicates the BoE's decisions, as they must balance the need to control inflation with the support of economic growth.
The evidence of a weakening labour market provides justification for the interest rate cut of last week, as the economy has shown signs of contraction and weakening labour market conditions, including fewer people employed and a steady unemployment rate at 4.7%. This calls for supportive monetary policy to avoid pushing the economy into stagnation or recession.
Investors expect one more interest rate cut this year, in December, as the BoE continues to respond to signs of decreased demand and a cooling labour market. However, the weakening labour market could lead to a moderate increase in unemployment, which may limit the speed and scale of future rate cuts.
The London Stock Exchange Group (LSEG) provides data on investor expectations, and their data shows that markets are pricing in the possibility of rates falling further to around 3.5% by mid-2026. The BoE must tread carefully, as raising or holding interest rates risks deepening economic weakness, while cutting rates too aggressively may stoke inflation again.
In conclusion, the slowing wage growth and falling job vacancies are key factors pushing the UK central bank toward further monetary easing or at least pausing aggressive rate hikes to support a softer economy and ensure inflation continues to decline without triggering a recession. The BoE faces a delicate balance in its monetary policy decisions, as it seeks to support economic growth while maintaining control over inflation.
The Bank of England (BoE) might consider cutting interest rates again due to the diminishing business activity in the UK labor market, as evidenced by the slow growth in wages and the declining number of job vacancies. The low business activity could potentially impact financing, with less investment and spending resulting from the contracting economic conditions and weakening labor market.
The falling job vacancies in different sectors suggest a slowdown in business activities, which may have further consequences on the UK's financial landscape as employers might scale back their operations or delay investments, impacting economic growth.
