Less alarming UK jobs data eases pressure on the Bank of England

Last month’s UK jobs data revealed that May saw the largest fall in payrolled employee numbers on record (well, since 2014, and not including the peak of the pandemic). This month’s data shows that this didn’t actually happen.

May’s 109k drop was revised up to a more modest 25k decline, which is more in keeping with the trend we’ve seen over the past six months or so. June saw a slightly sharper 41k fall, but presumably that will be revised up later too.

None of that is hugely surprising; we saw something similar with the March data too. And a sharp decline in worker numbers would be totally inconsistent with the official redundancy numbers we get each week from the government, which have shown no discernible increase over the past few months.

That said, these payroll numbers – which are one of the few reliable ways of looking at the jobs market right now – have been falling for seven out of the past eight months. Employment is down by almost a percentage point since October, on this metric, with more than half of the net job losses coming from hospitality or wholesale/retail. These are labour-intensive, lower-paid sectors which were more vulnerable to April’s National Insurance increase.

The fact that these sectors are dominated by small businesses may explain why it’s not showing up in the redundancy data, given that firms aren’t required to file a notice to the government if they have fewer than 20 staff on site.

The bottom line is that the jobs market is undoubtedly cooling – and judging by comparable vacancy data from hiring agency Indeed, it is cooler than in other major economies. But equally, the latest data shows things aren’t snowballing, which is what we tend to see during recessions.

That suggests pressure on wage growth should continue to ease this year. Annual private sector pay growth has slowed to 4.9% from 6% at the turn of the year. The three-month annualised rate, a better gauge of recent momentum, is at 3.7% – a much more comfortable level for the Bank. That’s consistent with what the BoE’s own “Decision Maker Panel” survey has shown over recent months too.

For now though, the combination of less worrisome jobs data and hotter inflation figures yesterday, suggests the bar for the Bank of England accelerating cuts is still high. We expect cuts in August and November, and two further cuts next year.