According to the latest official data, the UK job market is showing further signs of cooling down, which might ease the Bank of England's concerns over inflation pressures. However, despite the weak employment data, the Bank of England's cautious stance remains unchanged, with no significant shifts in expectations for rate cuts.
Data indicates that the UK's tax data reflects continued signs of a slowing job market. After a reduction of 47,000 in March, employment numbers dropped by nearly 33,000 again in April. At the same time, the number of job vacancies also saw a notable decline, falling by 42,000 in the three months ending in April, down to 761,000. This marks the largest drop in over a year and is below pre-pandemic levels. The Office for National Statistics reports that in January to March this year, the UK's average weekly earnings (excluding bonuses) grew by 5.6% year-on-year, falling short of the 5.7% market expectation, marking the lowest increase since November last year. Additionally, the unemployment rate slightly rose to 4.5%, though there is some uncertainty in this data as the survey is undergoing reform.
The reasons for the cooling job market may be linked to various factors such as tax increases and Trump-era trade tariffs. However, Luke Bartholomew, Deputy Chief Economist at asset management firm Aberdeen, noted that although the labor market is continually slowing, there has been no drastic downturn and recent favorable trade news might provide support for the Bank of England's gradual easing cycle.
Even after the data release, the pound exchange rate and market expectations of the Bank of England's rate cut pace showed no significant change, but there was a three-way split in the Monetary Policy Committee's May rate decision. Five members supported a 25 basis point cut, two members advocated for a 50 basis point cut, while the other two members believed rates should remain unchanged. Some members like Clare Lombardelli and Megan Greene argue that despite the slowdown in the labor market, wage growth remains above the 2% target, potentially leading to inflation pressure; whereas Alan Taylor supports a larger rate cut due to the "perilous" trade situation. Senior Economist at global job site Indeed, Jack Kennedy, states that although wage pressures have eased, a more prolonged cooling is needed to achieve the central bank's accelerated rate cut target.
Although the Office for National Statistics stated that response rates to labor surveys have improved, the quality of its detailed estimates still shows fluctuations. Additionally, the new labor market statistics method originally planned for November 2024 might be delayed until 2027, further increasing the data uncertainty.
