UK jobless rate steady at 4.9%, backing BOE September hold

The UK unemployment rate held at 4.9 percent in the three months through June, above the 4.8 percent consensus, while wage growth excluding bonuses edged up to 3.5 percent, ONS data showed Tuesday.

"The labor market picture is little changed overall, with some softening still evident," Liz McKeown, director of economic statistics at the Office for National Statistics, said.

Private sector pay growth slowed to 2.8 percent, the weakest since October 2020, while public sector regular pay rose 6.1 percent on the timing of NHS pay awards. Vacancies fell 6,000 to 707,000 in May-July, the lowest outside the pandemic since late 2014, driven mainly by smaller businesses citing labor and operating costs. Payrolled employees declined 13,000 in July, matching June's drop, and the claimant count fell 11,000 to 1.665 million.

The data supports a cautious stance from the Bank of England, which is widely expected to hold rates at its September meeting. A stabilizing labor market and contained wage pressures reduce the risk of entrenched inflation, though Wednesday's inflation print is expected to show a pickup toward 3 percent as energy bills rise.

The employment rate for 16- to 64-year-olds stood at 75.1 percent, down 0.2 percentage points on the year but up 0.1 percentage points on the quarter, while economic inactivity held at 20.9 percent. Total earnings including bonuses grew 4.1 percent in the quarter, down from 4.3 percent in the three months to May and matching consensus. Real earnings growth, adjusted for inflation, was 1.3 percent in the period. The claimant count for July fell on both a monthly and annual basis to 1.665 million, while early estimates showed payrolled employees at 30.3 million, down 94,000 year-on-year.

Markets have been pricing a hold at the September meeting, with most investors expecting the Bank of England to keep rates unchanged as it assesses the inflation trajectory. The softer wage growth in the private sector, in particular, suggests employers are regaining bargaining power over pay, which could help contain services inflation in the months ahead. Employment change came in at 83,000 in June, down from 147,000 in May, a further sign of cooling demand for workers.

BOE Hold Looks Increasingly Likely

Economists said the figures strengthen the case for the Bank of England to hold rates steady next month. "A stabilizing labor market and contained wage pressures support a cautious approach from the Bank of England," said Yael Selfin, chief economist at KPMG UK. "On the face of it, the latest labor market report looks relatively benign," said Jake Finney, senior economist at PwC UK. "The jobs market remains soft, but it isn't collapsing."

The pound slipped 0.15 percent against the dollar to $1.3524 in immediate reaction to the data. The last time vacancies were this low outside the pandemic was the three months through November 2014, showing the depth of the current hiring slowdown. Threadneedle Street has indicated that a weaker labor market backdrop could help limit the capacity for stubbornly high inflation to become entrenched in the economy.

Cost of Living Squeeze Returns

The labor market data lands as households face a renewed cost of living squeeze. The fallout from the Iran war has rattled the world economy, and official figures due Wednesday are expected to show UK inflation near 3 percent in July, driven by higher energy bills. That would narrow the gap between inflation and the 3.5 percent pace of regular wage growth, eroding real earnings gains for workers.

The figures also set the stage for a difficult autumn budget for Prime Minister Andy Burnham's government, which has promised "breathing space" measures to ease household financial pressure while tackling youth unemployment. The number of 16- to 24-year-olds not in education, employment or training surpassed one million earlier this year, the first time in more than a decade, prompting a government review led by former Labour cabinet minister Alan Milburn. Work and Pensions Secretary Pat McFadden said the government's welfare reforms and a youth jobs grant aim to support hiring. "We will continue to reform welfare and employment support so that more people can live independently and restore opportunity across the country," he added.

This article is for informational purposes only and does not constitute investment advice.