Benign UK jobs market weakens the case for rate hikes
At a Glance
The desk posits that ongoing weakness in the UK jobs market significantly mitigates the case for immediate rate hikes from the Bank of England (BoE). Per the full note from ING, with private sector hiring stagnating and wage growth remaining elusive, it's likely that the BoE will maintain current rates unless energy prices surge unexpectedly. The unemployment rate remains steady at 4.9%, yet the considerable disparity between public and private sector employment growth raises concerns about economic resilience. With no major shifts anticipated on the calendar, market positioning in GBP pairs may remain subdued as traders await further data on inflation and growth prospects.
Key Takeaways
- 01UK labor market shows signs of weakness, especially in private sector employment.
- 02Public sector wages are growing significantly faster than private sector wages.
- 03The BoE is likely to maintain current rate levels unless energy prices escalate.
- 04Consumer services are particularly vulnerable with annualized employment declines near 3%.
Full Analysis
What the desk is arguing
The desk argues that the recent trends in the UK labor market undermine the rationale for the BoE to pursue further rate increases. Per the full note from ING, hiring and wage growth in the private sector are faltering, which suggests the economy is not heating up sufficiently to trigger an aggressive monetary response from the central bank.
Particularly alarming is the decline in consumer services employment, with job opportunities in hospitality, retail, and entertainment sectors contracting at an annualized rate of almost 3%. This sluggishness, driven by past hikes in National Insurance and minimum wages, indicates that sectors once buoyed by post-Covid recovery are now facing headwinds, exacerbating the case for keeping rates on hold.
Where it sits in our coverage
Our consensus target for GBP/USD currently stands at 1.075, with a range between 1.04 and 1.12. Significant firms contributing to this consensus include:
This perspective aligns closely with jpmorgan’s target, which suggests a slight bullish outlook relative to the consensus midpoint, while bofa presents a contrarian viewpoint advocating for a bearish stance in alignment with ongoing economic challenges.
How other firms see it
Firms like jpmorgan and others echo the desk's view, emphasizing a cautious outlook for rate hikes based on recent labor market data. In contrast, bofa holds a more pessimistic view, indicating potential for deeper economic challenges that may necessitate lower rates.
Market participants should keep an eye on how these dynamics intersect with broader trends such as inflation metrics, which could influence rate expectations and thus impact GBP pairs, particularly GBP/USD and GBP/EUR.
Market Implications
Traders should monitor the GBP/USD level, particularly if it approaches the 1.075 consensus target, as any bullish or bearish movements could be indicative of prevailing sentiment on UK economic resilience. Additionally, shifts in inflation data could prompt reassessments of the BoE's monetary policy stance.
From the original
Older quick take Quick take Published 08:02 United Kingdom Benign UK jobs market weakens the case for rate hikes Ongoing weakness in private sector hiring and wage growth bolsters our call for the Bank of England to keep rates on hold this year, unless things get materially worse
Related speeches
4 itemsCool UK jobs market questions need for rate hikes
The UK's job market continues to show signs of weakness, raising questions about the necessity for interest rate hikes from the Bank of England (BoE) in the near future. Per the full note from ING, sustained low levels of private-sector hiring and wage stagnation suggest that any rate hikes might be pushed back to 2026, contingent on unexpected spikes in energy prices. With the latest figures showing a 1.1% growth in payrolls on a three-month annualized basis, the outlook remains cautious amidst ongoing reductions in consumer-facing jobs. Consequently, the desk believes the BoE is unlikely to change rates this year and might begin cutting them by spring 2027, reflecting a hesitant outlook on growth amidst job market stagnation.
UK jobs data keeps questioning the need for rate hikes
The recent UK jobs data poses significant questions regarding the necessity for interest rate hikes by the Bank of England. Although the unemployment rate decreased to 4.9% and May payroll numbers saw a slight uptick, the underlying data points to fundamental weaknesses, particularly in the private sector. Per the full note from ING, the contraction in consumer-facing industries remains pronounced, highlighting a troubling trajectory that keeps monetary policy uncertainties at the forefront.