The latest labor market data from the UK provides a clearer signal: employment heating is cooling, and wage pressures are easing. For the Bank of England, this combination usually means that concerns about the inflation "second round effects" would marginally ease, thereby leaving room for subsequent rate cuts.
Cooling Labor Market: Unemployment Rate Still at High Levels
According to the Office for National Statistics (ONS), the unemployment rate for the three months ending in November is estimated at 5.1%, which is considered relatively high in recent years. The employment rate during the same period is around 75.1%, indicating a sluggish state of “weak employment and stable unemployment.”
This means the labor market has not significantly tightened again. In terms of policy assessment, a high plateau in the unemployment rate often suppresses companies' bargaining power and willingness to expand employment.
Decrease in Wage Growth: Core Pressure Point Loosens
Regarding the wage indicator closely monitored by the Bank of England, the latest figures from ONS show:
- Regular pay, excluding bonuses, grew by 4.5% year-on-year;
- Total pay, including bonuses, increased by 4.7% year-on-year;
- By sector, private sector regular pay is about 3.6%, while the public sector is around 7.9% (influenced by previous salary adjustment patterns).
As wage growth slows down, it essentially "cools down" inflation in the service sector. This is why many institutions interpret this report as a clearer direction for rate cuts, but the timing still depends on inflation and confirmation from subsequent data.
Decrease in Payroll Numbers: Companies More Cautious About Employment
From the tax-calculated “payrolled employees,” the initial figure shared by the ONS for December shows a decrease of about 43,000 month-on-month, with a total of about 30.2 million (initial figures may be revised).
Another detail is job vacancies: from October to December, the number of vacancies is about 734,000, which is a slight increase of about 10,000 from before, indicating that companies have not completely "stalled" but recruitment is becoming more selective.
Institutional Views: Consensus on Direction of Rate Cuts, Differences in Timing
Several institutions formed a consensus of "directional agreement, pace discrepancy" in their interpretations:
- Deutsche Bank tends to believe that the labor market remains fragile but shows some signs of stabilization; the slowdown in private sector wages is closer to a range compatible with the inflation target, making future rate cuts more inevitable, though the specific point needs observation.
- JPMorgan emphasizes the weakness in the employment side and "dovish" signals, believing that the wage slowdown exceeds expectations and tends to direct the next rate cut to a later meeting window.
- Capital Economics warns: the extent of the slowdown in total pay growth may not be enough to immediately trigger action in February, unless inflation data noticeably weakens afterward, otherwise, it is more likely to watch and wait.
Market Impact: Higher Probability of the Bank of England "Holding Steady", but Rate Cut Expectations Persist
Reuters reports that the market generally expects the Bank of England to maintain interest rates at 3.75% in February, but interest rate futures are still pricing in potential future cuts; at the same time, the pound weakened after the data release.
In other words, this data seems more like consolidating the "path of retreating inflationary pressure" rather than immediately hitting the "act now" button. Future variables mainly depend on whether inflation figures decline as expected and whether employment contraction further spreads to broader industries.
