UK Labour Market Shift Sparks Rate Cut Hopes

The UK's labour market showed signs of cooling in Q3, with unemployment rising to 5% and wage growth slowing. This supports expectations for a possible Bank of England interest rate cut. Other economic indicators point to a potential easing of inflation pressure, impacting currency and government bond performance.

The British labour market showed noticeable signs of cooling in the third quarter, as unemployment climbed to 5%—the highest since early 2021—while wage growth decelerated, according to the Office for National Statistics. This shift bolsters expectations for an impending interest rate cut by the Bank of England.

Data also revealed a significant two-month drop in payrolls, marking the largest decline since late 2020. Consequently, the pound tumbled against the dollar, and British government bonds experienced a rally, underlining the cooling market conditions.

Finance Minister Rachel Reeves is preparing for her November budget amidst these labor market concerns, as further easing in borrowing costs is anticipated. Surveys indicate a continuation in the trend of easing inflation pressures, paving the way potentially for a Bank of England rate cut in December, especially if fiscal policy supports it.

(With inputs from agencies.)