UK Jobs Market Stays Soft Ahead of BoE Rate Decision

• Britain’s labour market remains weak ahead of the Bank of England’s (BoE) interest rate decision later this week. Regular wage growth held at 3.5% year-over-year in the three months to July 2026, close to its slowest pace since 2020 and broadly in line with economists’ expectations. The unemployment rate remained unchanged at 4.9% over the same period.
• Job vacancies declined to 702,000 in the three months to August 2026, the lowest since 2014 excluding the COVID-19 pandemic period. Small businesses cited the high cost of employment as one reason for limited hiring.
• Hiring also continued to weaken, with preliminary tax data showing the number of payrolled employees fell by 26,000 in August. Private-sector wage growth has also cooled, reducing concerns that higher inflation could become embedded through stronger wage increases.
• The BoE is assessing whether the rise in energy prices stemming from the Iran conflict will interrupt the gradual cooling in wage growth and underlying inflation pressures. Despite those risks, the weaker labour-market data has reinforced expectations that policymakers will keep rates unchanged at the central bank’s September 17 meeting.
• Investors on September 14 were pricing roughly a one-in-three chance of a 25-basis-point rate hike on Thursday, while a November increase was seen as almost certain, followed by another potential move in December.
• The continued cooling in wages and hiring reduces the immediate risk of a wage-price spiral, giving the BoE some room to hold rates despite the renewed energy-driven inflation shock. However, persistently high oil prices could shift the balance toward tightening later in the year, which explains why markets are assigning a much higher probability to a November hike.

(Source: Reuters)