Employment cooling down but high salaries are hard to cool off, the Bank of England's interest rate cut path may still be cautious.

Data released by the UK government on Thursday showed that the annual wage growth in the UK, excluding bonuses, was 5.0% for the three months leading up to May, slightly higher than expected. At the same time, the significant decrease in employment numbers was much lower than initially reported. Overall, these data suggest that the UK labor market is cooling down, but the cooling may be slower than the Bank of England's expectations. Economists surveyed by Reuters had a median expectation that regular wage growth would slow down from the initial reported 5.2% for the three months leading up to the end of April to 4.9%. The wage growth data for April was revised slightly upwards to 5.3%, while the initial estimate for a decrease of 109,000 in employment numbers in May (the largest decline since the pandemic) was revised significantly to a decrease of 25,000. The preliminary estimate for a decrease of 41,000 in employment numbers in June was also announced. The data released by the UK's Office for National Statistics comes from tax department records. The Bank of England is closely monitoring wage growth and employment numbers to track signs of continued domestic price pressure, especially after data on Wednesday showed that inflation rate in June rose to 3.6% (the highest level since January 2024). Most Bank of England policymakers believe that to maintain consumer price inflation near the 2% target in the medium term, an annual wage growth rate of around 3% would be ideal. In May, the Bank of England predicted that the annual wage growth rate in the private sector, excluding bonuses, for the three months leading up to June would be 5.2%, and would slow down to 3.8% in the final quarter of the year. The data released on Thursday showed that for the three months leading up to May, this wage growth indicator had already slowed down to 4.9%. Some employers have stated that they expect to reduce their hiring as a result of increases in the minimum wage implemented in April, higher employer social security contributions, and planned tightening of employment regulations. Despite inflation being above target levels, the combination of reduced job vacancies and increased job seekers is one of the key reasons why the Bank of England expects to continue with a gradual pace of interest rate cuts.