The UK unemployment rate increased in October while wage growth slowed, according to data released on Tuesday, strengthening expectations that the Bank of England could cut interest rates later this week.
Figures from the Office for National Statistics showed that the jobless rate rose to 5.1% in the three months to October, up from 5.0% in the previous period. The earlier reading had already marked a post-pandemic high, underlining further softening in the labour market.
At the same time, pay growth across the economy eased. Average earnings excluding bonuses grew at an annual rate of 4.6% in the three months to October, slightly lower than the revised 4.7% recorded a month earlier.
Labour market weakness supports rate cut expectations
The latest data confirms signs of a cooling UK labour market, a development that is likely to weigh heavily on the Bank of England’s upcoming interest rate decision. The central bank is scheduled to hold its final policy meeting of the year on Thursday.
While unemployment remains elevated, the Bank has also been cautious about persistently strong wage growth feeding into inflation pressures. However, recent figures suggest those pressures may now be easing.
UK consumer price inflation slowed to 3.6% in October, down from 3.8% in September, marking the slowest pace of price growth in four months. Despite the improvement, inflation remains well above the Bank of England’s 2% target and is still the highest among the Group of Seven major economies.
Bank of England seen cutting rates
The Bank of England left interest rates unchanged at its last meeting after a closely divided vote, with four of the nine policymakers supporting a 25-basis-point rate cut.
Markets now expect the Monetary Policy Committee to lower the benchmark interest rate to 3.75% from 4%, with Governor Andrew Bailey widely seen shifting his stance. Such a move would bring borrowing costs to their lowest level since early February 2023.
Additional support for a rate cut comes from fiscal measures announced in last month’s budget by Chancellor Rachel Reeves. These included relief on energy bills, fuel duty, rail fares, and prescription charges, all of which are expected to help ease inflation pressures.
Analysts at ABN Amro noted that the budget measures could reduce inflation by around 0.5 percentage points, according to Bank of England estimates. They added that this lowers the risk of elevated inflation becoming entrenched in expectations.
