UK jobs market continues to slow, but interest rate cut ‘ruled out’

The number of payrolled employees fell again in the latest labour market report, and regular wage growth continued to slow

London city workers against high rise office buildings
(Image credit: Shomos Uddin via Getty Images)

High borrowing costs and tax changes haven’t caused the UK jobs market to fall off a cliff edge, but it is showing continual signs of slowing, according to the latest labour market data from the Office for National Statistics (ONS).

The number of payrolled employees in the UK fell by 8,000 in August, according to an early estimate, following a revised fall of 6,000 in July. On an annual basis, payrolls were down 127,000.

The estimated number of job vacancies also fell by 10,000 between June and August – the 38th consecutive decrease. The rate of unemployment held steady at 4.7%.

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The silver lining, according to Deutsche Bank’s chief UK economist Sanjay Raja, is that the pace of slack is slowing. He thinks “the big unwind of jobs hoarding in the labour market is likely complete”.

The speed at which the labour market is cooling “won’t be enough to trigger another policy loosening, given growing anxiety over increasing inflation,” said Suren Thiru, economics director at the Institute of Chartered Accountants in England and Wales.

Slowing wage growth “concerning for households”

Given the persistence of inflation, households may be concerned about slowing wage growth.

Real wages are still growing at a rate of 1.2% after inflation is factored in, but the outlook is “far from reassuring”, according to Alice Haine, personal finance analyst at investment platform Bestinvest.

“A heavier tax burden, driven by frozen income tax thresholds, means more people are being dragged deeper into higher tax bands as their wages increase,” she said.

“Add to that stagnant economic growth, rising household bills, the prospect of more tax hikes in the Autumn Budget and the potential for no further rate cuts this year, and households may be feeling under financial pressure once again.”

With job insecurity also on the rise, Haine suggests taking a more conservative approach to spending so households can build up their emergency savings. It is generally recommended to have at least enough savings to cover three to six months of essential spending.

Labour market outlook

There are a number of variables that could impact the jobs market going forward, from the path of interest rates and inflation to policy decisions from the government at the upcoming Autumn Budget.

“Generally, hiring surveys have turned slightly brighter since the spring, though the Bank of England’s decision maker panel survey suggests the opposite,” said James Smith, UK economist at financial institution ING.

His base case is that the gradual cooling seen so far this year continues.

If the labour market continues to cool, wage growth should ease further too, boosting the case for future rate cuts. ING still thinks a November cut is a possibility, despite the outlook becoming more uncertain in recent weeks given the persistence of inflation.

Deutsche Bank also expects pay settlements to “continue edging lower over the course of the year”, and is forecasting one more rate cut in 2025, coming in December.

Other forecasters like Pantheon Macroeconomics think rates will be kept on hold until 2026.

Katie Williams
Staff Writer

Katie has a background in investment writing and is interested in everything to do with personal finance, politics, and investing. She enjoys translating complex topics into easy-to-understand stories to help people make the most of their money.


Katie believes investing shouldn’t be complicated, and that demystifying it can help normal people improve their lives.


Before joining the MoneyWeek team, Katie worked as an investment writer at Invesco, a global asset management firm. She joined the company as a graduate in 2019. While there, she wrote about the global economy, bond markets, alternative investments and UK equities.


Katie loves writing and studied English at the University of Cambridge. Outside of work, she enjoys going to the theatre, reading novels, travelling and trying new restaurants with friends.