UK Jobs Market Recovers, Supporting Potential Bank of England Rate Hike
By William Schomberg and Suban Abdulla
Signs of Recovery in the UK Labour Market
LONDON, Oct 20 (Reuters) - British workers have seen another modest rise in the pace of pay growth and there were other signs of a small recovery in the jobs market, according to data which could bolster the case for a Bank of England interest rate hike next month.
Pay Growth and Employment Data
Average weekly earnings, excluding bonuses, grew by 3.7% in the three months to August compared with the same period in 2025, the Office for National Statistics said, extending a gradual pickup since touching a low of 3.4% earlier this year.
A Reuters poll of economists had pointed to a weaker increase of 3.6%. The figure for the three months to July was revised up slightly to show a rise of 3.6%.
Pay growth in the private sector also gathered a bit of pace, rising to 3.0% from 2.9%.
Labour Market Resilience
'SOME RESILIENCE' IN LABOUR MARKET
A preliminary measure of payrolled employees from Britain's tax office rose by 13,000 in September. The change for August was revised to show an increase of 1,000 compared with a provisional estimate of a decline of 26,000.
"The latest figures indicate a labour market showing some resilience, echoing the wider economy's better-than-expected performance," Jack Kennedy, senior economist at jobs website Indeed, said.
Impact of Government Policy
However, he said the chance of a stronger turnaround was dependent on the first budget of British finance minister John Healey next week. His predecessor Rachel Reeves raised a tax on employers in 2025 which was followed by a fall in hiring.
"Today's figures confirm a labour market that is treading water," Kennedy said. "The question is whether the budget gives employers a reason to start swimming."
Unemployment and Currency Reaction
Britain's unemployment rate — which is derived from a survey that the ONS is overhauling — dropped to 4.7% in the three months to August, its lowest since mid-2025.
Sterling rose against the US dollar after the data was published.
Bank of England Outlook and Economic Risks
The BoE is looking for signs that the Iran war energy price shock is turning into broader inflation pressure in the economy including through demands for higher pay.
Weaknesses in the Jobs Market
There were some details in Tuesday's data that suggested the jobs market remains weak.
Job vacancies in the three months to September fell to 691,000 from 704,000 in the three months to August, the first time they went below 700,000 since the three months to April 2021.
"The continued fall in vacancies is a flashing red warning light for the labour market, suggesting that a damaging side effect of this year's AI-fuelled economic growth has been weaker hiring demand, compounded by elevated employment costs," Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said.
Interest Rate Expectations and Inflation
Investors expect the BoE will raise its benchmark Bank Rate to 4% at the November meeting of its Monetary Policy Committee. So far it has not followed the US Federal Reserve and the European Central Bank in increasing borrowing costs.
Governor Andrew Bailey said last week the longer the war goes on, the harder it will be for the BoE not to respond, but he also said it was still "early days" and inflation pressures remained "quite subdued".
Upcoming Inflation Data
Official data due on Wednesday is expected to show headline consumer price inflation accelerated in September to 3.4% from 3.1% in August, moving further above the BoE's 2% target, according to the economists polled by Reuters. Underlying measures of inflation are also expected to have sped up.
(Writing by William Schomberg, editing by Suban Abdulla and Andrew Heavens)
