What's takeaway 1 on Benign UK jobs market weakens the case for rate hikes?

UK labor market shows signs of weakness, especially in private sector employment.

What's takeaway 2 on Benign UK jobs market weakens the case for rate hikes?

Public sector wages are growing significantly faster than private sector wages.

What are the market implications for Benign UK jobs market weakens the case for rate hikes?

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.

What are the risks to this view on Benign UK jobs market weakens the case for rate hikes?

A notable increase in global energy prices could shift the BoE's outlook, potentially triggering a hawkish pivot in monetary policy which would invalidate the current bearish sentiment toward GBP strength. Similarly, unforeseen economic data revealing substantial growth could also pressure the BoE to reconsider its cautious rate stance.

Benign UK jobs market weakens the case for rate hikes

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:

jpmorgan: Targeting 1.10 by Mar-26
bofa: Targeting 1.04 by Mar-26

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.

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 in the energy market We expect the Bank of England to keep rates on hold unless energy prices materially spike Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download James Smith Developed Markets Economist, UK What’s striking about the latest UK jobs numbers is just how much the picture varies by sector. Overall, the backdrop looks stable – unemployment is unchanged at 4.9%, payroll employment is flat, and vacancies are levelling out. But as has been the case throughout this year, the government is performing a lot better than the private sector.

Public sector payroll numbers are up 0.7% so far this year, where the private sector is down 0.5% – including a further decline through June. That weakness is particularly concentrated in consumer services – hospitality, retail and entertainment – where we’re seeing employment fall at close to 3% annualised rates, with that pace of decline showing little sign of easing off. We think that’s a consequence of last year’s National Insurance and minimum wage hikes, coupled with the fact that some of these sectors had begun to look overstaffed (weak productivity) after extreme post-Covid jobs market tightness.

Consumer-facing industries have suffered Source: Macrobond, ING "> Source: Macrobond, ING Admittedly, we shouldn’t overstate the weakness. This is a story of attrition; redundancy numbers are relatively low. But this consistently low hire, low fire jobs market has had a clear impact on wage growth.

Again, the difference is stark between the public and private sectors. Pay is growing in excess of 5% annually in the former, while the private sector is experiencing wage growth below 3%. That’s down from 6% just 18 months ago and is below the level that the Bank of England thinks is consistent with achieving a 2% inflation target over the medium-term.

This is a key factor in our call for the Bank of England to keep rates on hold this year, unless things get materially worse in the energy market. Just as we saw with the rise in headline inflation 12 months ago, the weaker jobs market should mitigate the risk of second-round effects and a long-lasting bout of price pressure. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives.

The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Older quick take

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