James Smith, developed markets economist at ING, said the cooling UK labour market means there is no need for the Bank of England to raise interest rates, unless there is a “severe and prolonged spike” in energy prices as a result of the Middle East war.
Mixed signals in the jobs market
Smith noted that while the UK economy might be picking up speed, as last week’s GDP data tentatively hints, there is little sign of it in the jobs market. He said it depends on where you look: government is still actively hiring, a trend seen throughout this year, but consumer-facing industries like hospitality and retail have been consistently shedding jobs, with the pace of decline getting worse. The remainder of the private sector is flatlining, and most surveys don’t point to an imminent upturn.
Wage growth and vacancies
Payroll growth is running at 1.1% on a three-month annualised basis, though Smith has doubts over how long this can continue given more austere public spending plans. Wage growth is 6.1% across government, compared to just 2.8% in the private sector, the latter being slightly depressed by “compositional” effects. Vacancies are still gradually falling and are well down on pre-Covid levels, and there is little sign that wage growth is about to turn higher.
Outlook for rates
Barring a severe and persistent spike in energy prices, Smith thinks the Bank will keep rates on hold until next spring, before cutting rates at least twice in 2027.
