In this context, the hiring rate in the UK has decreased, however, wages are continuing to rise, posing a conundrum for the Bank of England in terms of interest rate decisions.
Bank of England Maintains Cautious Stance on Interest Rates Amidst Weakening Jobs Market
The Bank of England (BoE) has chosen to maintain a cautious approach to interest rate cuts, despite signs of a weakening jobs market in Britain. The Monetary Policy Committee (MPC) is focused on controlling inflation and preventing persistent inflationary pressures, even as the jobs market shows signs of weakness and pay growth slows 1.
Inflation, particularly in sectors such as energy, food, and administered prices, remains above the 2% target, at around 3.5% in Q2 2025 1. The MPC adopts a medium-term and forward-looking approach to ensure monetary policy meets the 2% inflation target sustainably. This approach means the committee is wary of loosening policy too quickly and risking inflation becoming entrenched again 1.
The recent rise in consumer price inflation in some sectors and elevated wage growth (albeit slowing) necessitates a "gradual and careful" approach, according to the MPC 1. This cautious stance was reflected in the committee’s split vote on reducing the Bank Rate only modestly (by 0.25 percentage points to 4%) rather than making larger cuts or holding rates steady at 4.25% 1.
The BoE aims to balance supporting growth and employment with containing inflation risks. According to LSEG data, investors are fully pricing another cut only in February 2026 1. Thomas Pugh, chief economist at RSM UK, stated that the impact of the tax hike on employers and a sharp increase in the minimum wage is fading 1.
The number of job vacancies fell by 44,000 in the three months to July, to 718,000 1. The reduction in the number of employees on payrolls in June was revised down to 26,000, marking the sixth consecutive month of decline, with the smallest decline occurring in July 1. The originally reported fall in payrolls in June was 41,000, but this was revised down 1.
The inactivity rate - which measures people out of work and not looking for a job - fell to its lowest since the start of the coronavirus pandemic at 21% 1. The labour market figures suggest a stagflation quandary facing the MPC, as overall average weekly earnings, excluding bonuses, grew by 5.0% in the three months to June, remaining unchanged from the three months to May 1. Britain's unemployment rate in the three months to June held at 4.7%, its highest since the second quarter of 2021 1.
The Office for National Statistics' figures show a continued cooling of the labour market, but less sharply than in recent months 1. The number of employees on company payrolls fell by a provisional 8,000 in July compared to June 1. Sterling rose slightly after the jobs figures were published 1.
The BoE cut interest rates to 4% from 4.25% last week in a tight 5-4 vote by the MPC 1. Despite the weaker jobs market, the BoE prioritizes maintaining progress toward reducing inflation sustainably over responding immediately to avoid reigniting inflation pressures and undermining medium-term economic stability 13.
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