UK Jobs Market Shows Growing Signs of Slowdown Says Bank of England Governor Bailey

Growing evidence suggests the UK jobs market is experiencing a notable slowdown as employers adjust to increased national insurance contributions by reducing recruitment and offering lower wage increases, according to Bank of England Governor Andrew Bailey.

The Bank’s monetary policy committee will weigh the combined impact of reduced employment and slower wage growth during its August meeting, where decisions on interest rates, currently at 4.25%, will be made. Bailey, who previously advocated maintaining current rates, appears to be adopting a more measured stance following signs of economic faltering despite earlier growth this year.

Speaking at the British Chambers of Commerce trade conference in London, Bailey highlighted mounting evidence of companies adjusting their employment and remuneration strategies in response to heightened employer NICs. The labour market particularly shows signs of increasing slack, with recent data indicating a significant anticipated decline in wage growth over the coming year.

The UK economy’s performance has been mixed, showing 0.7% growth in the first quarter before contracting 0.3% in April. May witnessed the most substantial monthly decline in PAYE payrolls since the initial Covid lockdown in 2020, with employment dropping by over 100,000. Private sector annual earnings growth decreased to 5.1% in the three months to April, down from 5.9% in the preceding quarter.

Market expectations suggest two additional interest rate reductions this year, potentially reaching 3.75%. Bailey emphasised that underlying economic growth remains weak and is likely to stay subdued throughout the year as businesses navigate uncertainties stemming from US import tariffs.

The governor also addressed ongoing inflationary pressures, particularly in food categories, with notable increases in meat, chocolate, and non-alcoholic beverages. These rises reflect higher wholesale prices and are attributed to reduced cattle herds and climate-related disruptions affecting coffee and cocoa production. The consumer prices index slightly decreased to 3.4% in May from 3.5% in April, though concerns persist about maintaining inflation above the target rate of 3%.