UK (Parliament Politics Magazine) – UK unemployment rose to 4.7% and wage growth slowed to 5%, raising pressure on the Bank of England to slash interest rates amid a shrinking economy.
As reported by The Guardian, rising unemployment and slowing wage growth may prompt the central bank to cut interest rates in August.
ONS data on UK jobs, pay, and inflation in May
The Office for National Statistics reported that Britain’s unemployment rate rose to 4.7% between March and May, up 0.1 percentage points from April.
City analysts had predicted a decline in pay growth to 5%, which matched expectations, but the unemployment rate rose above earlier projections.
Job openings fell once more in June, dropping to 727,000 — the 36th consecutive month of decline in advertised vacancies.
Economic slowdown combined with rising inflation is expected to put pressure on the Bank of England before its 7 August policy meeting.
Last month, inflation went up to 3.6%, which is above the BoE’s 2% goal. But officials are more worried that the economy shrank by 0.1% in May, after already falling by 0.3% in April.
Chancellor Rachel Reeves faces pressure as weak economic indicators raise concerns about Labour’s strategy, with tax hikes expected this autumn.
The combination of slowing growth, rising unemployment, and falling import prices, mainly from China, could help drive inflation down.
KPMG report about the UK job market in June
Economists are forecasting two interest rate cuts from the Bank of England this year, with the first expected at the August policy meeting.
The Bank of England had projected a rise in unemployment to 4.6% for the May quarter. It is also expected that HMRC payroll figures for June to reveal a 70,000 drop from May.
The latest data from KPMG and the REC showed a rise in job seekers during June. Candidate numbers grew at the fastest pace since November 2020, during Britain’s second Covid lockdown.
According to the report, permanent roles declined at the fastest rate in 22 months, as redundancies surged across sectors.
What did Liz McKeown say about falling payroll and pay growth?
Liz McKeown, ONS director of economic statistics, said,
“The labour market continues to weaken, with the number of employees on payroll falling again, though revised tax data shows the decline in recent months is less pronounced than previously estimated.”
She added,
“Pay growth fell again in both cash and real terms, but both measures remain relatively strong by historic standards. The number of job vacancies is still falling and has now been dropping continuously for three years.”
What did Yael Selfin say about a potential rate cut?
Yael Selfin, chief economist at KPMG UK, said,
“Slowing activity in the labour market, coupled with pay pressures easing, will likely prompt the Bank of England to lower interest rates next month.”
She added,
“Slowing activity in the labour market, coupled with pay pressures easing, will likely prompt the Bank of England to lower interest rates next month.”
What role did Rachel Reeves’ employment taxes play in inflation?
Rachel Reeves came under fire on 16 July over employment taxes introduced in April.
Grocery sector leaders claimed food prices rose as firms passed on added costs, including higher minimum wage requirements.
A potential rate cut next month offers some relief for Ms Reeves, as it would lower borrowing costs amid continued pressure on public finances.
What did Suren Thiru say about rising business costs?
Suren Thiru, chief economist at the Institute of Chartered Accountants, warned that a slowing economy and increasing operating costs are putting pressure on firms. He said this could lead to more layoffs.
He added,
“These dispiriting figures probably seal the deal on an August interest rate cut as it will fuel fears among rate setters over the health of the economy, regardless of June’s hotter-than-expected inflation.”