UK jobs surveys send fresh cool-down signals

New surveys indicate a further slowdown in the UK labour market, with private sector pay growth holding at 3% against 3.4% inflation, and job vacancies falling 5% since March, now 21% below pre-pandemic levels. The UK is uniquely positioned among advanced economies with lower job openings than before COVID-19, particularly in graduate-level roles, signaling a more cautious approach by employers. This weakening, though not yet a slump, is closely watched by the Bank of England for its implications on future interest rate decisions.

Analysis

The UK labour market is displaying definitive signs of a slowdown, providing crucial data points for the Bank of England's monetary policy considerations. Private sector pay settlements held at 3% in the three months to May, lagging the most recent inflation reading of 3.4% and indicating a squeeze on real wages. This moderation is further evidenced by a 5% drop in job vacancies since March, with the total now 21% below pre-pandemic levels, positioning the UK as a negative outlier among advanced economies tracked by recruitment firm Indeed. The downturn is particularly acute in forward-looking, cyclical sectors, with graduate-level postings at their lowest since at least 2018 and significant declines in human resources, accountancy, and marketing. Recent data also shows weakness in consumer-facing industries, with hospitality and food service job postings falling 11% and 10% respectively since April. These converging trends of moderating wage growth and falling labour demand reinforce the Bank of England's view of easing inflationary pressures, strengthening the case for future interest rate reductions.

Key Decisions for Investors

• The sustained cooling of the UK labour market and below-inflation wage growth increases the probability of a more dovish stance from the Bank of England, suggesting investors should position for potential interest rate cuts.
• Given the pronounced weakness in consumer-facing sectors like hospitality, retail, and food service, as well as cyclical professional services, a review of exposure to UK domestic cyclical stocks is warranted.
• Investors should monitor whether the UK's unique underperformance in job vacancies compared to pre-pandemic levels and other advanced economies signals deeper structural economic issues beyond a typical cyclical slowdown, which could impact long-term UK asset performance.