Private Sector Wage Growth Slows; BoE May Adopt Dovish Stance
The UK labor market showed renewed signs of cooling in the second quarter. Private sector wage growth slowed, while the number of job vacancies fell to its lowest level in over five years. These conditions reinforce signals that labor market-driven inflationary pressure is beginning to ease.
Regular wage growth in the private sector stood at just 2.8% year-on-year for the three months to June—the weakest pace since late 2020. While the data aligns with Bank of England projections, it nonetheless exerted slight downward pressure on the pound sterling. The unemployment rate held steady at 4.9%, defying market expectations of a decline.
Weakness was also evident in the number of job vacancies, which dropped to approximately 707,000 in the three months to July. Excluding the pandemic period, this figure marks the lowest level since late 2014. Meanwhile, employment grew by only 83,000—well below market expectations.
Payroll data also revealed a decline in the number of employees on payrolls for the sixth consecutive month in July. This reinforces the picture of companies becoming more cautious about hiring amidst economic uncertainty and the risk of rising costs linked to the US-Iran conflict.
While overall wage growth saw a slight uptick, this was largely driven by salary increases in the public sector, particularly within healthcare. The Bank of England continues to monitor whether the surge in energy prices resulting from the Iran conflict will translate into more persistent inflationary pressure via wage increases.
Newsmaker Analysis: A weakening labor market and slowing private sector wage growth provide grounds for the BoE to keep interest rates on hold in the near term. This sentiment tends to limit the pound's appreciation. However, should energy prices remain high and reignite inflation and wage demands, the possibility of a BoE rate hike later in the year remains a factor. (arl)
Source: Newsmaker.id
