Cooling UK jobs market questions need for multiple rate hikes
The UK jobs market is demonstrating signs of cooling, which raises questions about the necessity for further rate hikes by the Bank of England (BoE). Per the full note from ING, recent data indicates a decline in private sector payrolls, particularly in consumer services like retail and hospitality, which suggests the UK economy may not face a prolonged inflationary environment. Current wage growth rates, although slightly improving, are still consistent with meeting the BoE's medium-term inflation target of 2%. A critical determinant for future monetary policy will be the government's decision regarding the National Living Wage rise in the upcoming October budget.
What the desk is arguing
The thesis articulated here is the diminishing pressure on the UK job market, which dilutes the urgency for additional monetary policy tightening. Per the full note from ING, the August jobs report recorded a further decline of 34,000 private sector jobs, with consumer services facing particularly severe losses.
The wider implications of this trend are significant; the job market appears to be flatlining, as evident from negative employment growth across multiple sectors. With wage growth stabilizing around 2.9% and inflation expectations tempered, the case for aggressive rate hikes weakens.
Where it sits in our coverage
Our current consensus target for the GBP/USD is set at 1.075, with a range of 1.04 to 1.12 into March 2026. Specific firm targets include: - jp morgan: 1.10 - bofa: 1.04
This analysis aligns closely with the insights provided by jpmorgan, which suggests a more conservative approach from the BoE, indicating that they are unlikely to aggressively raise rates in the near future. This positioning is at the upper bound of our projected range given the current economic indicators.
How other firms see it
The consensus view is shared among firms like jpmorgan, which align with a tempered outlook on rate hikes given cooling job numbers. Conversely, bofa maintains a more cautious stance, anticipating potential policy shifts that could push the GBP lower.
Focus on the GBP/USD trajectory as it reflects expectations regarding the BoE's rate adjustments; watch developments closely as inflation indicators evolve further.
What the calendar says
With no high-impact events scheduled for the next 30 days, traders should closely monitor the fallout from the job data as it may influence market sentiment leading into the October budget announcement regarding the National Living Wage.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01UK job market cooling raises questions over additional BoE rate hikes.
- 02Private sector payrolls fell by 34,000, particularly impacting retail and hospitality sectors.
- 03Wage growth remains stable but insufficient for aggressive policy tightening.
- 04Upcoming October budget could be pivotal for National Living Wage decisions.
Market implications
Traders should watch for the GBP/USD approaching key technical levels around 1.075, which may reinforce resistance as labor market concerns persist. A shift in policy stance could arise if inflation indicators deviate significantly from current expectations.
Risks to this view
Unexpected inflationary shocks, such as surging energy prices, could complicate the BoE's stance and necessitate a pivot towards further rate hikes, reversing the current deleveraging expectations.
Older quick take Quick take Published 07:50 United Kingdom Cooling UK jobs market questions need for multiple rate hikes Today’s jobs report is yet another reminder that the UK economy is far less susceptible to another long-lasting inflation wave. Though a rate hike can't be ruled out if energy prices stay high, our base case is for the Bank of England to keep policy on hold into next year Hiring in retail and hospitality continues to decline as the UK jobs market cools Share X LinkedIn E-mail Copy link Share X LinkedIn E-mail Copy link Download James Smith Developed Markets Economist, UK It’s a familiar tale. Private sector payrolls fell another 34k in August, down 0.8% year-on-year.
The situation remains particularly acute in consumer services – retail and hospitality – where, in annualised terms, job numbers are falling in excess of 3%. If anything, this rate of decline appears to be getting worse. Employment growth across the rest of the private sector is still slightly negative, consistent with major hiring surveys which suggest the wider jobs market is effectively flatlining.
All of this goes hand in hand with the weak wage growth we’re seeing. Admittedly, private sector wage growth looks like it has reached a floor of 2.9% – or around 3.3% when so-called compositional effects are stripped out. The latest two month-on-month readings have been a tad hotter and point to the annual rate moving a little higher over the next few months.
Retail and hospitality hiring keeps on falling Source: Macrobond, ING "> Source: Macrobond, ING Still, the basic story is unchanged. Wage growth across the private sector is consistent with a medium-term inflation target of 2%, judging by the Bank of England’s own analysis earlier this year. And there’s little indication in the surveys that this is about to change.
A lot will depend on the government’s decision on next April’s National Living Wage rise, due with the October budget, though it’s unlikely that it will materially outstrip this year’s 4.1% increase for over 21s. It’s a similar story for annual pay settlements, which should start to come through over the next few months, to the extent that the UK has collective bargaining and wage setting. In short, the fact that the UK jobs market is far, far cooler than it was when the Ukraine shock hit four years ago, means we’re much less likely to see severe second-round effects on inflation from higher energy prices.
This is a point that the Bank of England’s doves appear to be becoming increasingly confident about. So while a rate hike can’t be ruled out later this year if energy prices stay high, we expect another 6-3 vote to keep rates on hold this week, and we’re not convinced we’ll see a wholesale hawkish pivot on the committee this time around. Wage growth United Kingdom Jobs Bank of England 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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