Cooling UK labour market ‘questions need’ for Bank of England rate hikes; grocery inflation slows to two-year low – business live

James Smith, developed markets economist for the UK at ING, said the cooling labour market gives the Bank of England little reason to raise interest rates unless the Middle East war triggers a severe and prolonged energy-price spike. His assessment follows employment data and last week’s GDP figures, which tentatively suggested the UK economy may be gaining momentum. The jobs market, however, offers limited evidence of a broad recovery, with conditions differing sharply by sector. Government hiring remains strong, with payroll growth running at 1.1% on a three-month annualised basis. Smith questioned the durability of that support as more austere public-spending plans emerge. Consumer-facing industries, particularly hospitality and retail, have continued to shed jobs, with the pace of decline worsening. The weakness follows sustained pressure since last year’s tax and minimum-wage increases. The remainder of the private sector is flatlining. Apart from a more optimistic KPMG/REC hiring survey last week, most indicators show no imminent recruitment upturn. The divergence is also evident in pay. Wages are rising 6.1% across government, compared with 2.8% in the private sector. Compositional effects are slightly depressing the latter figure, a point the Bank has highlighted, but Smith said the underlying labour-market picture remains cool. Vacancies continue to decline and remain well below pre-Covid levels. The unemployment rate also signals weakness, despite recent reliability concerns. Crucially for policymakers, there is little evidence that wage growth is about to accelerate. For investors, the data reduce the immediate risk of further monetary tightening but signal softer domestic demand and continued pressure on consumer-facing businesses. Smith expects rates to remain on hold until next spring, absent a severe and persistent energy shock, before at least two cuts in 2027.