“Today’s data will strengthen the case from the MPC’s more dovish members that the labour market remains a key source of disinflationary pressure. The Bank of England appears to have balanced a weaker labour market and higher energy-driven inflation, supporting a decision to leave interest rates unchanged this week. Nonetheless, the energy price outlook has deteriorated in recent weeks and, if these pressures persist, holding rates may become increasingly difficult.
“Headline pay growth held at 3.5%, supported by public sector pay settlements. Private sector pay growth, a better indication of underlying labour market strength, remained subdued at 2.9%. Workers’ bargaining power remains weak and, despite higher energy prices feeding through to households over the coming months, a meaningful rebound in wages is not expected. We expect headline pay growth to ease towards 3% by the end of the year.
“Unemployment remained unchanged at 4.9% in the three months to July, while vacancies showed little sign of a recovery. Elevated borrowing costs, weak demand and ongoing geopolitical uncertainty are likely to constrain hiring, pushing unemployment gradually higher over the coming months.”
