Bank of England Rate Cut Expectations Rise as UK Unemployment Hits 5%

The Bank of England is facing increased pressure to cut interest rates after the UK unemployment rate rose to 5% in the July to September quarter, the highest level since February 2021, signaling a potential slowdown in the British economy.

The Office for National Statistics (ONS) reported today that the number of employees on payrolls fell by 32,000 in September and another 32,000 in October, reaching 30.3 million. Annual growth in employees’ average earnings also slowed to 4.6% in the quarter, down from 4.7% previously. Liz McKeown, ONS director of economic statistics, stated, “Taken together these figures point to a weakening labour market.” This cooling labor market could impact consumer spending and overall economic growth.

Economists are now predicting a potential rate cut as early as December. Suren Thiru, economics director at ICAEW, believes the odds of a rate cut next month have risen, noting that these figures “suggest that the UK’s labour market is suffering from pre-Budget jitters.” Richard Carter, head of fixed interest research at Quilter Cheviot, pointed out that Bank of England governor Andrew Bailey’s vote could be pivotal, stating, “An early Christmas present could come in the form of an interest rate cut.” The Bank of England’s monetary policy decisions have a direct impact on borrowing costs for individuals and businesses across the UK; you can learn more about monetary policy on the Bank of England’s website.

Concerns are also growing about the impact of government policy on the labor market. Isaac Stell, investment manager at Wealth Club, called the situation a “self-inflicted wound,” attributing the decline to fiscal levers pulled by the government. Officials are now preparing for the upcoming budget on November 26th, where further economic policy will be revealed.

The Bank of England’s next monetary policy meeting is scheduled for December 18th, where policymakers will assess the latest economic data and determine whether to adjust interest rates.