UK Unemployment Rate Unexpectedly Drops to 4.0% in August

The number of payrolled UK employees dropped by 35k between July and August 2024. However, payrolled employees remained 165k higher compared to August 2023.
Job vacancies declined by 34k from July 2024 to September 2024, marking the 27th consecutive period of falling vacancies.
Claimant counts increased by 27.9k in September after rising by just 0.3k in August.

Slower Wage Growth Raises Questions on Inflation

August’s UK wage growth figures suggest a softer inflation outlook. Slower wage growth may reduce disposable income, possibly curbing consumer spending and easing inflationary pressures.

However, trends in the UK unemployment rate could be a focal point. The unemployment rate was down from 4.4% in May 2024 to 4.0% in August 2024, signaling a tightening labor market. Tighter labor market conditions could support wage growth, potentially fueling consumer spending and demand-driven inflation.

Monetary Policy and the Bank of England

Inflation remains a key concern for the Bank of England. This month, Governor Andrew Bailey indicated that if inflation remains low, the Bank may adopt a more dovish policy by cutting rates more aggressively. However, the BoE could take a more cautious stance on monetary policy with a lower unemployment rate of 4.0%.

Wednesday’s inflation figures for September will be crucial to the BoE’s policy stance and investors’ expectations of November and December rate cuts.

Economists expect the UK inflation rate to fall from 2.2% in August to 1.9% in September. A softer-than-expected print, alongside weaker wage growth, may ease concerns about the unemployment rate. Such a scenario could fuel speculation about multiple Q4 2024 BoE rate cuts.

Investors should track any BoE insights into the latest labor market data.