UK’s poor jobs numbers could point to rate cuts in August
Although April saw the National Living Wage rise, another fall in pay growth and a continued loosening in labour market conditions will give the Bank of England slightly more confidence that domestic disinflation is here to stay.
This is the view of Matt Swannell (Chief Economic Advisor to the EY ITEM Club), who was commenting on the country’s latest job figures. The data shows that the unemployment rate edged up again to 4.6% – the first time it has exceeded its pre-pandemic rate.
Payrolled employment fell by 109,000 and vacancies declined further, marking the 35th consecutive quarterly drop, with quarterly falls recorded in 14 out of 18 industry sectors.
“Pay growth fell across the three months to April, even though the National Living Wage rose by 6.7% during that month. Headline (three-month average of the annual rate) pay growth slowed to 5.2%, down from 5.5% in March,” said Swannell.
“Although pay growth is still high, some of the momentum in wage gains has eased in the first few months of 2025, and earnings growth will likely slowly return to more normal levels over the next 12 months.”
Swannell noted that the labour market continues to weaken, reflecting a sustained period of modest activity growth, combined with April’s rises in the National Living Wage and employers’ National Insurance Contributions (NICs).
The change in businesses’ operating conditions and ongoing economic uncertainty also softened hiring intentions, with job openings slipping further below their 2019 level.
“The last Bank of England meeting saw the MPC deeply divided. The message has since been widespread agreement amongst rate-setters that disinflation is on track, with the disagreement more on the pace at which rates can safely be cut,” he said.
“(The) data is likely to reinforce the view that underlying inflationary pressures are cooling. But with pay growth still far above the rate consistent with inflation returning sustainably to 2%, most of the MPC will still want to act cautiously to guard against sticky inflation. A cut at the MPC’s meeting next week appears unlikely, and we expect the next reduction in Bank Rate to come at the August meeting.”
This was largely echoed by Paige Tao (Economist at PwC UK), who noted that rising national insurance costs, a higher minimum wage, and escalating global tariffs have all contributed to heightened cost pressures for employers.
This has left businesses clearly feeling the squeeze, she said.
“If there’s any upside, it may be in the battle to control inflation. Annual wage growth excluding bonuses eased to 5.2% in the latest figures, marking the second consecutive monthly decline.
“This gradual cooling in pay growth may offer some reassurance to the Bank of England, following last month’s inflation reading unexpectedly jumping to its highest level in over a year. However, with wage growth remaining high in absolute terms, the Bank may want to see this trend continue before proceeding with further rate cuts.”
