UK unemployment steady at 4.7% in July as wage growth slows, BOE seen holding rates

The UK’s unemployment rate remained unchanged at 4.7% in the three months to July, while wage growth eased slightly, pointing to a cooling labour market that is unlikely to prompt immediate action from the Bank of England at its upcoming policy meeting.

Figures released by the Office for National Statistics on Tuesday showed unemployment holding at the same level as in the previous three months.

That compares with 4.6% earlier in the year and 4.1% in the same period last year, underlining a gradual rise in joblessness.

Wage growth slows but remains historically strong

Regular pay growth, which excludes bonuses, slowed to 4.8% in the three months to July, down from 5.0% in June.

Despite the decline, wage growth remains elevated by historic standards, reflecting the lingering effects of tight labor conditions during the post-pandemic recovery.

“The labour market continues to cool, with the number of people on payroll falling again, while firms also told us there were fewer jobs in the latest period,” said Liz McKeown, director of economic statistics at the ONS.

Early estimates showed payrolls fell by 8,000 between July and August, extending a 6,000 decline the previous month.

Vacancies have also fallen, with the number of jobseekers now more than double the number of available roles.

Source: The Guardian

BOE expected to hold rates steady

The latest labor market data will likely reinforce expectations that the Bank of England will keep its key interest rate unchanged at 4% when policymakers meet on Thursday.

Since last summer, the bank has gradually lowered borrowing costs in quarter-point steps but is now facing a delicate balancing act between supporting growth and containing inflation.

BOE Governor Andrew Bailey recently acknowledged “considerably more doubt” about when further cuts might come, citing both labor market weakness and rising price pressures.

Inflation stood at 4% in August and is expected to remain at that level in September, well above the bank’s 2% target, partly due to higher government-imposed charges such as water bills and payroll taxes.

“An interest-rate cut on Thursday remains a nonstarter as the speed at which the labor market is loosening at present won't be enough to trigger another policy loosening, given growing anxiety over increasing inflation,” said Suren Thiru, economics director at the Institute of Chartered Accountants.

Outlook for pay and fiscal policy

Analysts expect wage growth to moderate further in the coming months.

Monica George Michail, associate economist at the National Institute of Economic and Social Research, forecasts pay growth will fall toward 4% by year-end as hiring momentum continues to fade.

"Today’s figures show that unemployment stands at 4.7%, its highest level in four years, and hiring momentum is rapidly slowing, with the number of jobseekers more than double the available vacancies," Michail said.

"This suggests that wage growth will likely continue to fall, approaching 4% by year-end, according to our forecast."

On the fiscal front, the rise in unemployment is expected to weigh on government decisions, with economists suggesting the Chancellor may avoid further tax increases on businesses in the next budget to prevent placing additional pressure on growth.