The possibility of the Bank of England implementing further interest rate cuts in the near future has been raised following the release of a highly anticipated report indicating a slowdown in the UK job market. According to the report, the pace of wage increases decreased last month, while both temporary and permanent hiring continued to decline. Additionally, the number of job vacancies has dropped for the ninth consecutive month, as stated by the Recruitment and Employment Confederation (REC) and KPMG, who conducted the research among approximately 400 recruitment and employment consultancies in July.
The findings of this report, combined with a growing sense of optimism among businesses regarding the UK economy, will be closely monitored by the Bank of England. This comes after the Bank’s decision earlier this month to lower interest rates for the first time in over four years as a response to inflation returning to its 2% target. In fact, Governor Andrew Bailey had expressed concerns last year that the rapid pace of salary increases was contributing to inflation, leading to the Bank’s decision to raise rates in an attempt to curb it.
The report’s indication of a slowdown in wage increases is likely to influence the Bank’s decision-making, although other key data, such as the latest inflation figures to be released next Wednesday, will also play a significant role. However, financial markets have already factored in a 92% chance of an interest rate cut in November, according to stock exchange data from Thursday morning following the publication of the report. Investors also believe there is a 37% chance of a cut in September.
In a recent interview with Sky News, Mr. Bailey expressed caution over implementing further rate cuts following the Bank’s decision to reduce rates from 5.25% to 5%. However, the REC and KPMG report is expected to hold significant weight, particularly in light of concerns regarding the accuracy of the Office for National Statistics’ official employment figures, which are derived from a survey that has seen low participation rates since the pandemic.
The report from REC and KPMG stated, “Despite a decrease in appointments in July, companies continued to offer higher salaries for permanent staff. The rate of inflation remained high, although slightly lower than in June and below the survey’s average… Temporary pay also increased, although the rate of inflation was minimal and the weakest in nearly three and a half years. The rise in availability of temporary staff has put pressure on pay rates.”
Jon Holt, the UK chief executive of KPMG, commented, “With economic growth forecasts improving and the possibility of further interest rate cuts in the coming months, we are seeing some signs of economic recovery. However, it is still early days for this new government, and businesses may hold back on fully implementing their recruitment and investment strategies until the chancellor reveals more information in her autumn budget.”
Deputy chief executive of REC, Kate Shoesmith, added, “Employers are gradually becoming more optimistic about their businesses and the overall economy… The slower growth in both salaries and temporary pay suggests that employers are aligning pay with inflation, as desired by the Bank of England. The interest rate cut is a welcome development, but employers will require more of the same to maintain their confidence.”
