Employment Data "Surprises" Support Bank of England to Hold Interest Rates Steady on Thursday

According to information from Zhitong Finance APP, UK employers are laying off workers at the fastest pace in nine months, highlighting the weakness in the UK job market, while the Bank of England will announce its latest interest rate decision on Thursday. Most economists expect the Bank of England to keep interest rates unchanged at 3.75% this Thursday. Data released by the UK Office for National Statistics on Tuesday showed that the number of company employees decreased by 26,000 in August, and the previous month's figure was revised downward to a decrease of 19,000. This decline was larger than economists' forecast of a reduction of 5,000, although preliminary estimates are often revised.

Demand for labor remains sluggish, with job vacancies down by 8,000 to 702,000—a five-year low. In the three months to July, the unemployment rate remained steady at 4.9%, but the UK Office for National Statistics warned that due to data collection quality issues, this estimate remains affected.

After the data was released, the pound extended its losses, falling 0.2% to 1.3472 US dollars.

This data indicates that the UK labor market's two-year downturn is still ongoing. Employers are facing greater uncertainty due to the US-Iran conflict and the first budget to be released by Prime Minister Andy Burnham on October 28.

Layoffs among UK companies are becoming increasingly severe. In the three months to July, the layoff rate rose to 3.9 per thousand employees—the highest level since the start of the year and the first increase since the three months to February.

Internal Division at the Bank of England: Weak Employment vs. High Oil Prices

The weak labor market lowers the possibility of a second-round inflation effect spreading into the UK economy, easing concerns among most Bank of England rate-setters. However, after oil prices jumped above $109 per barrel on Monday, worries about the inflation outlook are intensifying. Traders have increased their bets on Bank of England interest rate hikes, expecting as many as five increases by the end of next year.

Yael Selfin, Chief Economist at KPMG UK, said: “Today's data will reinforce the arguments of the more dovish members of the Bank of England Monetary Policy Committee, namely that the labor market remains a key source of disinflationary pressure. High borrowing costs, weak demand, and continued geopolitical uncertainty could dampen hiring.”

Alleviating the UK's youth unemployment crisis is the Labour government's top priority, but the crisis worsened this summer. In the three months to July, the unemployment rate among 16 to 24-year-olds rose to 16.4%, the highest level since 2014, reversing a slight downward trend seen previously.