Slowdown in U.K. jobs market could pave way for BoE interest rate cut, Deutsche Bank says

By Louis Goss

New figures showing a recent slowdown in Britain's jobs market could pave the way for an interest rate cut from the Bank of England this August, a top Deutsche Bank economist has said.

The data from the Office for National Statistics show U.K. vacancies are down, wage growth has slowed, and the country's unemployment rate is up.

The ONS figures should now "keep an August rate cut on the table," Sanjay Raja, Deutsche Bank's chief U.K. economist, said.

Britain's central bank is scheduled to hold its next Monetary Policy Committee meeting on August 1, during which it will decide whether to cut interest rates from long-time highs of 5.25%.

Raja explained that the ONS figures paint an "encouraging picture" that the U.K.'s labor market is cooling at rates sufficient for the Bank of England to cut interest rates next month.

The U.K. official data shows the number of job vacancies fell below 900,000 for the first time since June 2021, dropping from heights of 905,000 in May to 889,000 in June.

Annual wage growth also fell from rates of 5.9% in the three months ending in April to 5.7% in three months ending in May.

Britain's construction sector saw the slowest rate of pay rises at 3%, while the U.K.'s finance and business services sector saw the largest pay hikes at 6.7%.

Raja added that while the unemployment rate stayed flat at 4.4%, it seems "very likely" that figure will increase to 4.5% by the next report, in-line with the MPC's estimates.

Nicholas Hyett, investment manager at Wealth Club said the "modest rise in unemployment and fall in vacancies" signals the U.K.'s "employment market is weakening."

Any slowdown in Britain's jobs market "could mean we see interest rates start to fall quite quickly," Hyett added.

-Louis Goss

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07-18-24 0631ET

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