New UK labour data makes Bank of England interest rate cut less likely in the short term: reaction

by | Jun 11, 2024

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This morning’s announcement of the latest labour market data from the ONS, has got plenty for the MPC to consider ahead of their meeting next week and the next interest rate decision.

Commenting on the latest data, Richard Carter, head of fixed interest research at Quilter Cheviot said: “The UK labour market has been in somewhat in a state of flux due to statistical issues in reporting the data. Recently the revised data indicated the UK had a much stronger jobs market than was previously thought, and while today shows some sign of it turning, it remains to be in a fairly robust shape and earnings growth remains strong as we head towards the general election.

“The number of payrolled employees in the UK decreased by 36,000 (0.1%) between March and April 2024, but rose by 201,000 (0.7%) between April 2023 and April 2024. Therefore, this on its own is not going to shift the needle for the Bank of England to start cutting rates. Similarly, the UK unemployment rate (for people aged 16 years and over) was estimated at 4.4% in February to April 2024.”

 
 

“What the Bank of England crucially wants to see is wage inflation fall more than it has, especially with the headline rate of inflation very much near target. The latest data shows that annual growth in employees’ average regular earnings (excluding bonuses) in Great Britain was 6.0% in February to April 2024, and annual growth in total earnings (including bonuses) was 5.9%.

“The BoE will be incredibly cautious to cut rates at a period when spending power is high for consumers and potentially triggering a fresh inflationary bout. As such, today’s data will continue to put a dampener on a rate cut in June or August, with November remaining the likeliest date to see that first fall.

“It will be interesting to see how the labour market progresses given we are likely to see a change in government in little under four weeks’ time. Labour has committed to creating a huge number of ‘green jobs’ as it looks to accelerate the energy transition, but with the data showing things are still finely balanced, whether or not this can be achieved remains to be seen.”

 
 

Julia Turney, Partner and Head of Platform and Benefits at Barnett Waddingham comments: “In the face of tough economic times, this small increase in unemployment is negligible; it remains historically low. But the concerning finding lies in the  ‘economic inactivity’ figures, which reveal a troubling rise in individuals leaving the workforce due to health-related issues.”

“It is imperative that we address this economic inactivity which poses a significant threat to economic recovery. Meeting this challenge requires a multifaceted approach, including skill-building initiatives, investments in public transport and childcare, and more flexible policies for workers and businesses. We must also tackle barriers to employment with tools like rehabilitation strategies, mental health support, and flexible working arrangements. Companies need to continually evaluate these initiatives, using data analysis to monitor their effectiveness and identify areas for improvement.”

“As the general election approaches, all political parties must take this issue seriously and propose practical solutions. This is not a partisan issue, but a shared concern that requires commitment from the whole of Government.” 

 
 

Luke Bartholomew, Deputy Chief Economist, abrdn, said:“UK wage growth remains very strong, but with further evidence that the labour market is cooling, this report is unlikely to significantly change the thinking at the Bank of England. We expect the first rate cut in August, but that is dependent on further progress on bringing down underlying inflation pressure over the next few months. But for now, with wage growth significantly outstripping inflation, the ongoing rise in unemployment should not be enough to upset the UK’s modest growth rate.”

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