Fall in unemployment casts doubt over future rate cut in September

UK unemployment fell to its lowest level since February to 4.2% during July according to the latest figures from Office for National Statistics (ONS). 

Joe Nellis, MHA’s Economic Advisor, comments on today’s ONS unemployment and average earnings data:

Unemployment unexpectedly fell back to 4.2% in July which means another cut in rates is unlikely in the near future. As expected, there has been a decline in growth in average earnings, suggesting that the UK labour market is softening. The effects of the recent public sector wage deals are unlikely to change this in the medium term.

Unemployment is now back to levels that we saw at the back end of last year although there remain continued labour shortages across many sectors. Despite the fall in unemployment in July, looking ahead, we still predict the medium term unemployment rate to grow steadily, reaching around 5.3% by mid-2025.

Similarly, with the prospects of inflation falling below the Bank of England’s 2% target, we expect earnings growth to settle down at around 4% - 4.25% by next summer.