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Britain’s jobs market has weakened again, official data showed, with payrolls falling for a sixth month and vacancies dropping further, but wage growth stayed strong, underscoring why the Bank of England is so cautious about cutting interest rates.
With the central bank’s policymakers split over the risks of a hiring slump and a pickup in inflation pressures, the Office for National Statistics’ figures pointed to a continued cooling of the labour market, albeit less sharply than in recent months.
The number of employees on company payrolls, as measured by tax office data, fell by a provisional 8,000 in July from June, extending a run of declines that began in February but the smallest decline in that run.
The reduction in June was revised down to 26,000, fewer than the originally reported fall of 41,000.
Employers have said finance minister Rachel Reeves’ decision to raise a tax on them is weighing on their staffing and pay decisions, as well as causing an increase in their prices.
Basic wage growth in the private sector – watched closely by the BoE – edged down to 4.8% in the three months to June.
But overall average weekly earnings, excluding bonuses, grew by 5.0%, unchanged from the three months to May and above the 3% level seen as consistent with the BoE’s 2% inflation target.
“Today’s labour market figures underline the stagflation quandary facing the Monetary Policy Committee,” Jack Kennedy, senior economist at job website Indeed, said.
“While a further rate cut in November remains on the cards, it’s not a done deal with wage growth remaining elevated amid concerns over inflation persistence.”
The BoE last week cut interest rates to 4% from 4.25%, but only after a tight 5-4 vote by the MPC, which expects headline inflation to hit 4% soon, double its 2% target.
Sterling rose slightly after the jobs figures were published and investors trimmed their bets on the possibility of another BoE rate cut this year. They are fully pricing another cut only in February 2026, according to LSEG data.
Thomas Pugh, chief economist at tax and consulting firm RSM UK, saw signs that the hit to hiring caused by the tax hike on employers and a sharp increase in the minimum wage was fading.
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“It looks like the worst of the adjustment to the big increase in labour costs is now behind us, and that the labour market is now stabilising,” Pugh said.
However, Tuesday’s data showed that the number of job vacancies fell by 44,000 in the three months to July to 718,000, the lowest since the three months to April 2021.
Britain’s unemployment rate in the three months to June held at 4.7%, its highest since the second quarter of 2021, although that figure was based on a survey of households that the ONS is overhauling and has said is not currently reliable.
In one positive sign for the BoE and the government, the inactivity rate – which measures people out of work and not looking for a job – fell to its lowest since the start of the coronavirus pandemic at 21%.
(Reporting by Suban Abdulla and William Schomberg; Editing by Kate Holton, Aidan Lewis)
