Finally, the UK jobs market is levelling out
The UK employment landscape is showing signs of stabilizing, with a tentative recovery in hiring and a drop in the unemployment rate despite lingering challenges. Per the full note , private sector payrolls increased modestly by 8,000 in September after consistent declines, marking a shift that suggests we might be moving past the worst of the employment crisis. However, wage growth remains subdued at 3.4%, reaffirming the Bank of England's inflation target, while second-round effects from external shocks are still absent. Overall, the market appears hesitant, with skepticism over the longevity of this recovery, holding key opportunities for traders to position strategically ahead of upcoming developments in monetary policy.
What the desk is arguing
The stabilizing nature of the UK jobs market suggests a long-awaited shift after years of turmoil, though significant roadblocks remain. As outlined in the original research , despite a slight employment uptick, wage growth remains muted, indicating limited upward pressure on inflation, which the Bank of England (BoE) is keenly observing.
With the unemployment rate dropping from 4.9% to 4.7%, this trend does hint at improvement; however, much of this change could be attributed to an increase in inactivity, making the data less reassuring. The private sector's modest salary growth of 3.4%, when adjusted for compositional effects, aligns with the BoE's 2% inflation target, suggesting a stable economic climate yet one that is far from robust recovery.
Where it sits in our coverage
Our target for GBP/USD stands at 1.075, with a range stretching from 1.04 to 1.12. The anticipated targets ahead for major firms include: - jpmorgan - 1.10 (Mar26) - bofa - 1.04 (Mar26)
This perspective aligns with jpmorgan's forecast, which reflects a cautiously optimistic view of GBP/USD movement, differing slightly from bofa's more bearish outlook.
How other firms see it
In line with the upward sentiment, firms like jpmorgan maintain a constructive stance on the GBP, suggesting a degree of confidence in the recovery trajectory. Conversely, bofa presents a contrasting view, indicating skepticism about the sustainability of this employment rebound.
Market participants should also pay attention to the EUR/GBP dynamics, particularly as the BoE's monetary stance evolves in response to ongoing economic indicators. This pair's movement often mirrors broader market sentiments on UK economic health and investor expectations.
What the calendar says
No high-impact events are scheduled in the next month for the UK, meaning traders must look for smaller data releases or central bank communications to gauge sentiment shifts as they assess the broader market impacts surrounding these employment trends.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01UK employment shows signs of stabilizing with a minor increase in private sector payrolls.
- 02Wage growth remains subdued, suggesting limited inflationary pressure despite a drop in unemployment.
- 03Skepticism persists over the job market's recovery due to potential sampling issues and rising inactivity.
- 04Market positions should remain cautiously optimistic amid ongoing uncertainties.
Market implications
Traders should focus on positioning around key psychological levels such as 1.075 for GBP/USD, while monitoring economic data releases for indications of wage growth trends, which could influence BoE policy and currency valuation.
Risks to this view
Should job stagnation persist or worsen, this would discredit the recent stabilization claims, potentially resulting in a bearish reversal for GBP/USD. Additionally, any unexpected rise in inflation metrics could trigger a surprising monetary response from the BoE.
Older quick take Quick take Published 08:00 United Kingdom Finally, the UK jobs market is levelling out After a torrid couple of years for UK employment, there are growing signs that the worst is behind us and that hiring is starting to stabilise. But that is not the same thing as a jobs market that is heating up. Wage growth is cool and there's scant evidence of second-round effects from the energy shock so far There are tentative signs that UK employment is stabilising Finally, it looks like the UK jobs market might be levelling out.
After a long period of attrition, there are tentative signs that employment is stabilising. Private sector payrolls grew in September for the first time since January, albeit by a modest 8,000. Hospitality – a key area of weakness – also recorded a small increase for the first time in months, having been hammered by last year's combination of a big minimum wage hike and tax increases (retail is still shedding jobs, though).
These figures are prone to a fair bit of revision, but it does tally with signals from some hiring surveys that employment is starting to turn a corner. At face value, it also mirrors the drop in the unemployment rate – 4.9% down to 4.7% – though a fair chunk of that can be explained away by a rise in inactivity. And in any case, these figures are still shrouded in scepticism given long-running sampling problems.
Consumer facing employment is falling less rapidly Source: Macrobond, ING "> Source: Macrobond, ING Crucially, though, a jobs market that is stabilising is not the same as a jobs market that’s heating up. And that matters for wage growth. At 3.4% in the private sector, adjusting for so-called compositional effects, pay growth is still consistent with a 2% inflation target over the medium term, by the Bank of England’s own reckoning.
And though the data has been quite volatile over the past few months, the one-month annualised increase in private sector regular pay growth was down at 1.7% on the latest reading. BoE surveys on wage growth have been pretty much unchanged all year, around 3.5%. So when the Bank of England hikes rates in November, as looks increasingly likely, it won’t be because of anything in the economic data.
We still have inflation data tomorrow, but so far, there’s scant evidence that the energy shock is broadening out via second-round effects. Instead, a November hike – together with the follow-up move we tentatively expect in February – will be entirely an insurance move. That means that, assuming we don’t get big second-round effects emerging over the winter, the Bank should be in a position to start cutting rates again from late 2027, when the storm has passed.
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