The job market has stopped falling and stabilized, with wage growth hitting a nearly five-year low! The Bank of England is pleased to see a "reassurance pill" as the probability of staying put next week rises.

Before the Bank of England announces its latest interest rate decision next week, official data released by the UK showed further signs of stabilization in the labor market. The UK Office for National Statistics said on Tuesday that the number of employees receiving payrolls decreased by 4,000 in June, compared to an increase of 3,000 in May, which was better than economists' expectations of a decrease of 8,000. In the three months to June, the number of job vacancies in the UK was 712,000, roughly unchanged compared to the previous period. The unemployment rate remained at 4.9% for the three months to May, although the Office for National Statistics warned that there was a "fall in the quality of estimates" due to a temporary issue; the unemployment rate for young people aged 16 to 24 increased slightly to 16.4%, the highest level since 2014. The change in the number of employees receiving payrolls in the UK shows signs of stabilization Meanwhile, the rate of wage growth in the private sector has fallen to its lowest level since 2020. The UK Office for National Statistics said that wage growth excluding bonuses remained at 3.4% year-on-year for the three months to May. Wage growth in the private sector, which is of particular interest to the Bank of England, grew by 2.9% year-on-year for the three months to May, the slowest growth since October 2020. Wage growth in the UK private sector falls to the lowest level since 2020 The data above preliminarily indicates that the downward trend in the UK labor market may have reached a turning point just before Andy Burnham took over 10 Downing Street. Moody's Analytics senior economist Andrew Hunter said, "The UK labor market appears to be gradually stabilizing after a prolonged period of weakness. This suggests that the labor market has weathered recent energy shocks, while the long-term drag on employment from minimum wage increases and higher national insurance contributions is finally starting to fade." For Burnham, the new Prime Minister is taking over in a challenging economic environment - weak economic growth in recent years and a continued rise in unemployment rates. Burnham promised in his first speech as Prime Minister on Monday to create a "new economic model" and provide more "breathing space" for British families. He also stated on Tuesday that he would remove value-added tax from energy bills. The signs of stabilization in the UK labor market are expected to provide support for the Bank of England to maintain its stance next week. The state of the labor market is crucial for the Bank of England policymakers. Bank of England officials hope that weak labor demand can limit the second-round inflation effects caused by soaring energy prices. Since the first year of the Labour government led by Keir Starmer announced increases in employment taxes and the minimum wage, the number of employees receiving payrolls statistically reported by the UK National Statistics Office has been declining. As we enter 2026, the energy shocks caused by the Middle East war and the UK government's plans to further strengthen labor rights protection have brought new uncertainties to the labor market. Economists said, "The overall number of employees receiving payrolls is still declining, and the number of job vacancies is further decreasing, indicating that rising energy costs and tightening financing conditions may be suppressing labor demand." "These data provide the basis for the Bank of England to maintain its interest rates at the upcoming meeting in July." The market currently expects the Bank of England to keep interest rates unchanged next week. At present, traders believe that there is only a 14% probability of a 25 basis point rate hike by the Bank of England. However, due to the renewed tension between the US and Iran, investors still expect the Bank of England to take action to raise interest rates before the end of the year. Ruth Gregory, Deputy Chief Economist at Capital Economics UK, said, "The labor market remains very weak, which continues to show that the current environment is not sufficient to generate a clear second-round inflation effect. Today's data does not change our baseline judgment that the Bank of England will not raise interest rates further from the current 3.75%."