Britain's job market is showing clear signs of cooling as latest official figures reveal a significant slowdown in wage growth and a rise in unemployment, potentially paving the way for Bank of England interest rate cuts.
The Office for National Statistics reported that regular pay growth excluding bonuses slowed to 5.7% in the three months to August, down from 6.0% in the previous period, marking the smallest increase since early 2022. Meanwhile, the unemployment rate climbed to 4.3% - its highest level in nearly two years.
Key Economic Indicators Point to Cooling
The latest data presents a mixed picture for policymakers and economists:
- Regular pay growth fell to 5.7%, below expectations of 5.8%
- Unemployment rate rose to 4.3% from 4.2%
- Employment rate declined to 74.7%
- Number of payrolled employees decreased by 36,000 in September
- Vacancies continued their downward trend, falling for the 16th consecutive period
Implications for Bank of England Policy
The cooling labour market conditions are being closely watched by the Bank of England's Monetary Policy Committee as they consider future interest rate decisions. With wage growth slowing more quickly than anticipated and unemployment rising, pressure is mounting for rate cuts to stimulate economic activity.
"These figures will be welcomed by the Bank of England," said Ruth Gregory, deputy chief UK economist at Capital Economics. "They suggest that the loosening in the labour market we have been seeing is gaining momentum and that underlying pay pressure is easing."
Sector-Specific Impacts
The slowdown is affecting various sectors differently, with some industries experiencing more pronounced cooling than others. The data suggests that employers are becoming more cautious about hiring amid economic uncertainty, leading to reduced job vacancies and more competitive job markets.
Economists suggest that while the labour market remains relatively tight by historical standards, the clear downward trend in multiple indicators signals a normalization after the post-pandemic boom in job creation and wage growth.
