UK Jobs market cools down, easing pressure on bank of England
Britain’s labour market showed further signs of cooling last month, providing a measure of relief to the Bank of England (BoE) as it gauges the risk of persistent inflation pressures. The latest figures, released on Tuesday, point to a gradual softening of employment conditions against the backdrop of a national insurance hike and ongoing trade uncertainties driven by former US President Donald Trump’s tariffs.
According to provisional data from the tax office, the number of employees on company payrolls declined by almost 33,000 in April, following a fall of 47,000 the previous month. This continued slide reflects broader concerns over the resilience of the UK economy amid both domestic policy shifts and global trade tensions.
The number of job vacancies also retreated, falling by 42,000 in the three months to April to a total of 761,000 – the sharpest quarterly fall in more than a year. Vacancies have now slipped further below their pre-pandemic levels, suggesting employers are becoming more cautious about hiring.
The cooling in the labour market appears to be contributing to a slowdown in wage growth. The Office for National Statistics (ONS) reported that average weekly earnings, excluding bonuses, rose by 5.6 per cent in the three months to March compared with the same period last year. This marks the slowest rate of increase since November 2023 and represents a marginal easing in pay pressures.
Despite the figures, financial markets reacted with relative calm. Sterling held steady, and market expectations for the pace of BoE rate cuts this year were largely unchanged after the data’s release.
Luke Bartholomew, deputy chief economist at investment firm Aberdeen, said the figures suggest a “measured” slowdown rather than a sudden downturn in the jobs market. “While the labour market continues to slow, and there is some evidence of the impact of the increase in national insurance contributions, there is nothing to suggest it immediately fell off a cliff in response to the shock,” Bartholomew remarked.
He added that the easing of wage growth, combined with improving trade data in recent weeks, would reassure the Bank of England that its cautious approach to monetary easing remains appropriate. “There is nothing here to make the Bank of England regret its decision to say the easing cycle will continue to be only ‘gradual’,” he said.
BoE faces delicate balancing act
The central bank is closely monitoring the labour market as it assesses whether to quicken the pace of interest rate cuts in the face of slowing economic momentum and the fallout from Trump’s renewed trade tariffs.
Last week’s meeting of the BoE’s Monetary Policy Committee (MPC) revealed a rare three-way split, reflecting the challenges policymakers face. Five members supported a quarter-point cut, two advocated for a larger half-point reduction, while two preferred to keep rates unchanged.
Earlier this week, MPC members Clare Lombardelli and Megan Greene highlighted lingering inflation risks stemming from elevated pay growth, suggesting that current wage dynamics remain inconsistent with the BoE’s 2 per cent inflation target. Alan Taylor, another MPC member, pointed to the “quite perilous” global trade environment as a key reason for favouring a more aggressive rate cut.
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According to the ONS, private-sector pay excluding bonuses – a key measure of domestic inflationary pressure tracked by the BoE – rose by 5.6 per cent, softening from 5.9 per cent in the previous three-month period.
Jack Kennedy, senior economist at Indeed, commented that while the figures show some easing, wage growth remains high enough to keep the BoE cautious. “A more material and sustained cooling of wage pressures would open the door to faster interest rate cuts, but the MPC’s split vote in May underlines the continued caution over persistent inflation pressures,” Kennedy noted.
In a further sign of labour market softening, Britain’s unemployment rate edged up to 4.5 per cent in the three months to March, the highest since mid-2021. However, the ONS cautioned that the Labour Force Survey – the basis for the unemployment data – remains under review and is no longer considered a fully reliable gauge of labour market conditions. The agency is aiming to implement a revised statistical approach by November 2025, though a delay until 2027 remains possible.
