The prospect of the Bank of England cutting interest rates further in the near future has been raised after a closely watched report suggested the UK jobs market is showing signs of cooling. Researchers found that the pace of pay rises slowed last month, while the hiring of temporary and permanent staff continued to decline. This report, based on a survey of around 400 recruitment and employment consultancies in July, also indicated that vacancy numbers fell for the ninth consecutive month.
The Recruitment and Employment Confederation (REC) and KPMG, who conducted the research, noted that there was growing optimism among firms about the outlook for the UK economy. However, these findings will be closely monitored by the Bank of England, especially after the recent interest rate cut in response to inflation falling back to its 2% target.
Governor Andrew Bailey had previously expressed concerns about the pace of salary increases fueling inflation, which led to the Bank’s decision to raise rates. Signs that the pace of pay rises is now easing are likely to influence the Bank’s thinking, along with other key data such as the upcoming inflation figures. Financial markets have already priced in a 92% chance of an interest rate cut in November, with a 37% chance of a cut in September.
Despite the cautious approach expressed by Mr. Bailey regarding further imminent cuts, the REC and KPMG report is expected to be influential. There have been concerns over the accuracy of the Office for National Statistics’s official employment figures, which are based on a survey that has faced challenges with low participation rates since the pandemic.
The REC and KPMG report highlighted that companies continued to raise permanent staff salaries in July, despite making fewer appointments. The rate of inflation was softer than in June, and temp pay also increased, albeit at a marginal rate. KPMG’s UK chief executive Jon Holt mentioned that there are „green shoots of economic recovery“ with forecasts for economic growth improving and potential further interest rate cuts in the coming months.
However, Holt also noted that businesses may be cautious in fully implementing their recruitment and investment strategies until they receive more clarity from the government. The REC’s deputy chief executive Kate Shoesmith added that employers are gaining optimism for their businesses and the broader economy, with the interest rate cut being welcomed. Employers are expected to maintain confidence if pay remains in line with inflation.
In conclusion, the potential for the Bank of England to cut interest rates further in response to the cooling UK jobs market is a topic of significant interest and importance. The findings of the REC and KPMG report, along with other economic indicators, will play a crucial role in shaping the Bank’s decisions in the coming months. Businesses and investors will be closely monitoring these developments to assess the impact on the overall economic outlook.