U.K. jobs data draws mixed reactions as BoE weighs next move

Investing.com -- Analysts offered a range of reactions to the latest U.K. labour market data on Tuesday, which showed steady unemployment but signs of underlying weakness.

While the jobless rate held at 4.4%, experts pointed to falling payroll numbers, softening vacancies, and wage trends as indicators of a cooling market that could influence the Bank of England’s next move on interest rates.

"Our working assumption, for now, is that the jobs market continues to cool this year, but that we don’t see a material spike in joblessness. And for the Bank of England, that keeps all the focus on wage growth. The news here was a tad better than expected in February’s numbers – the year-on-year rate of regular pay growth stayed at 5.9%, versus expectations of a pick-up," ING said in a note.

Sanjay Raja, Deutsche Bank’s Chief U.K. Economist, advises caution when interpreting labor market data due to delays in the Office for National Statistics’ Transformed Labour Force Survey.

Despite this, trends in the Labour Force Survey and HMRC data indicate a weakening labor market. The data shows signs of a softening labor market with weaker payrolls and lower jobs growth relative to labor force participation growth. The number of jobs being created is failing to keep up with population growth.

The jobless rate is expected to rise to 4.5% in the three months to March, with redundancies continuing to track around 117,000 in the last four months. Vacancies have also continued to fall, with the March data showing the lowest level since May 2021.

Pay data has been revised lower, with Average Weekly Earnings (AWE) Regular and Private Pay running at 5.9% (3m/YoY), nearly double the rate consistent with the Monetary Policy Committee’s (MPC) target levels.

However, sequential pay in the private sector is slowing, with the 3m/3m annualised rate slowing to 4.5% (from 4.9%). This is expected to slow further into March, eventually converging to sub-4% by the end of the year.

Despite the weakening labor market, the MPC has been given the go-ahead to cut the Bank Rate in May. This decision is influenced by the better than expected pay data, continued evidence of labor market weakness, and the expected rise in inflation.

Capital Economics, on the other hand, warns that the softening jobs market could impact wage growth if the recent U.S. tariffs chaos becomes a significant drag on firms’ hiring intentions.

The firm suggests that the Bank of England may start to become less concerned about the upside risks to inflation from pay growth and more worried about the downside risks to activity due to higher U.S. tariffs.

There is a risk that interest rates may be cut faster than the projected fall from 4.50% now to 4.00% this year, Capital Economics added.