MEZIESBLOG

A weakening in Britain’s jobs market has eased fears that the Bank of England will need to raise interest rates again to counter inflation risks linked to the Middle East conflict.

Official figures showed unemployment rose to 5.0% in March from 4.9%, the Office for National Statistics revealed, while an early HMRC estimate of payrolled employment fell by 100,000 in April, far worse than economists had expected.

Wage growth also continued to slow, with average private sector earnings rising 3.0%, below the Bank’s forecasts.

The figures come as policymakers weigh the inflationary impact of higher energy prices stemming from the US and Israel’s war on Iran, after disruption to shipping routes and tensions around the Strait of Hormuz pushed up oil and gas markets.

Investors had begun questioning whether the Bank might need to resume rate rises after inflation risks intensified.

Economists said Tuesday’s data reduced that pressure.

Sanjay Raja, chief UK economist at Deutsche Bank, said the “mammoth” drop in payrolled employees would “stop any MPC member thinking about tightening monetary policy”.

He added that slowing wage growth meant the Bank could “look past the unfolding energy shock”.

ING economist James Smith agreed that the report “questions the need for Bank of England rate hikes”, arguing the economy was less vulnerable to the kind of wage-price spiral seen during the 2022 energy crisis.

Rob Wood at Pantheon Macroeconomics said the data gives the Bank’s monetary policy committee “wipes out the lingering chance of a hike at the June policy meeting”, as the previous indications that the labour market could be holding up well in the first couple of months after the Iran war have been challenged.

“Pay growth now provides key dovish evidence for the MPC, and puts in doubt a July rate hike too,” he added.

Thomas Pugh, economist at RSM UK, said weaker employment and slowing pay growth would “temper the need for aggressive rate hikes” as workers were now in a weaker position to demand higher wages to offset rising energy bills.