UK jobs market shows fresh signs of cooling as payrolls slip and pay growth eases

These were the main figures:

• The ILO unemployment rate for July was 4.9%, against a 5.0% forecast.
• That matched the previous reading of 4.9%.
• Employment growth came in at 67k in July, matching the 67k consensus.
• The prior employment change was 83k.
• Average weekly earnings increased 3.9% in the three months to July, in line with the 3m/y estimate of +3.9%.
• The earlier reading was +4.1%, subsequently revised up to +4.2%.
• Excluding bonuses, average weekly earnings gained 3.5% in the three months to July, also in line with the 3m/y forecast.
• The preceding ex-bonus figure was +3.5%.
• Payrolls dropped by 26k in August.
• The earlier payrolls print was -13k, since revised to -19k.

UK jobs data continues to point to a cooling market, although the release does not significantly alter the setup for the BOE before its Thursday gathering.

The unemployment rate was unchanged from the previous three-month period, while the employment rate held broadly firm at 75.1%.

The more current payrolls measure, however, may be a little more telling.

An initial estimate put payrolled employment 26,000 lower in August, putting the total at 30.2 million. On a year-on-year basis, payrolls have declined by 145,000.

The ONS notes that the count of payrolled employees has tended to fall over the last two years, so the latest drop is largely an extension of that trend.

Pay is also cooling, with total earnings growth easing to 3.9% in the three months to July, the weakest reading since late 2020.

Looked at as a whole, the figures indicate a jobs market that is steadily losing momentum.

Under normal conditions, softer recruitment and lower wage pressure would be a positive for the BOE. The difficulty for the central bank now is that the inflation narrative has moved elsewhere.

Rising oil and energy costs have moved inflation risks up the agenda once more, and investors are increasingly pricing in more BOE tightening even as labour demand softens. For this week, however, the consensus is that the Bank will keep its bank rate at 3.75%, though calls are building for another rate hike later this year.