UK labour market cooled rapidly in June, KPMG/REC survey shows

Britain's labor market cooled sharply in June, with a survey by REC and KPMG indicating staff availability jumped at the fastest pace since the pandemic, reaching levels only surpassed during the 2008 GFC and post-9/11 period. This significant slack, alongside cooling starting pay and demand, reflects high economic uncertainty and reinforces expectations for a Bank of England interest rate cut next month, especially following May's unexpected economic contraction.

Analysis

The UK labour market experienced a sharp cooling in June, as evidenced by the Recruitment and Employment Confederation (REC) and KPMG's staff availability index, which surged to 66.1—its highest reading since November 2020. This level of slack is historically significant, having only been exceeded during major economic shocks such as the 2008-09 financial crisis and the aftermath of the 9/11 attacks. The report attributes this trend not to a sudden economic downturn but to pervasive uncertainty stemming from geopolitical instability and rising costs, prompting companies to postpone hiring. This weakening in the labour market, which includes cooling demand for staff and slower growth in starting pay, directly supports expectations for a Bank of England interest rate cut next month. This survey data is particularly influential for the BoE given known issues with official statistics and arrives on the heels of data showing an unexpected contraction in UK economic growth in May.

Key Decisions for Investors

• The strengthening expectation of a near-term Bank of England rate cut suggests investors should evaluate positions in UK gilts, as bond prices are likely to rise in response to lower rates.
• Given the data points to a weakening domestic economy, investors in UK equities should consider rotating towards defensive sectors or companies with significant international revenue streams that are less exposed to UK-specific headwinds.
• The prospect of a BoE rate cut, driven by negative economic data, presents a bearish outlook for the British Pound (GBP); currency hedging strategies should be considered for portfolios with significant GBP exposure.
• Monitor the upcoming official wage growth data from the Office for National Statistics, as a confirmation of this cooling trend will be a critical final signal for the Bank of England's imminent policy decision.