The Bank of England faces pressure to lower interest rates in August because UK unemployment rates continue to rise while wage growth slows down. The Office for National Statistics (ONS) reports unemployment reached 4.7% during the three months ending in May which represents the highest level since June 2021 while pay growth decreased from 5.3% to 5%. The unemployment rate remained at 4.6% according to market expectations.
The labour market shows signs of deterioration according to ONS director Liz McKeown because vacancies decreased for the 36th consecutive month to 727,000 in June. Businesses face multiple challenges because of rising costs combined with inflation and declining economic growth which reduced by 0.1% in May after a 0.3% decrease in April.
Economists forecast at least one interest rate reduction this year with August representing the first opportunity for a rate decrease because of declining wages and decreasing workforce numbers. The central bank faces difficulties in making decisions because inflation remains at 3.6% which exceeds its 2% target.
The labour market data indicates permanent placements experienced their most significant decline since two years ago while job seekers are increasing at rates similar to the pandemic period. The negative economic forecast creates difficulties for Chancellor Rachel Reeves to implement her tax and growth initiatives.
