Britain’s labour market showed significant signs of cooling in August, with a sharp drop in job placements and slower wage growth, according to the Recruitment and Employment Confederation (REC) and KPMG.

The monthly Report on Jobs revealed that permanent job placements fell at the fastest rate in five months, while starting pay growth for permanent staff also hit its lowest point since early 2021.

KPMG’s UK Chief Executive, Jon Holt, noted that business confidence remains volatile, even after the Bank of England (BoE) cut interest rates last month.

The weakening labour market, particularly the deceleration in wage growth, is likely to fuel discussions of further rate cuts at the BoE’s upcoming Monetary Policy Committee meeting​.

While most economists believe the next rate cut could happen in November, there remains a one-in-four chance of a reduction as soon as the September 19 meeting​.

Official data on employment and wage growth, expected soon, will be closely watched as they provide further insights into the overall health of the UK labour market.

What's causing the slowdown?

The job slowdown in the UK in August 2024 was primarily driven by several factors:

1. Rising Interest Rates and Economic Uncertainty: The Bank of England's previous interest rate hikes to combat inflation made borrowing more expensive for businesses, leading to reduced investment and hiring. While the Bank recently cut rates, the impact of earlier hikes has contributed to reduced confidence in the labour market​.
2. Slower Pay Growth: Despite wage increases, pay growth slowed significantly, hitting its lowest level in five months. This deceleration in salary increases may have made jobs less attractive, especially in a period of high living costs​.
3. Fluctuating Business Confidence: Businesses have been grappling with fluctuating confidence due to economic conditions, including inflationary pressures and global uncertainties. As a result, employers have been cautious about expanding their workforce​.

These factors, combined with broader global economic challenges, have contributed to the recent cooling of the UK labour market.

The Bank of England (BoE) is considering further interest rate cuts primarily due to several economic pressures:

1. Cooling Labour Market: The UK labour market showed signs of losing steam in August, with job placements falling and wage growth slowing. This reflects a softening economy, which may reduce inflationary pressures and support the case for rate cuts​.
2. Moderating Inflation: While inflation has been a key concern, slowing wage growth and reduced economic activity might signal that inflation could stabilize without needing high interest rates. A rate cut would aim to stimulate the economy by making borrowing cheaper for businesses and consumers​.
3. Supporting Business Confidence: With fluctuating business confidence due to earlier rate hikes, the BoE might opt for cuts to encourage investment and hiring, particularly as companies have been cautious about expanding during economic uncertainty​.

These factors suggest that the BoE sees rate cuts as a way to ease financial conditions and support a slowing economy while maintaining price stability.