Recent data from the United Kingdom indicates a rapid cooling in the job market, with a significant decrease of 109,000 payrolled workers in May 2025, marking the largest monthly drop since records began in 2014, excluding the pandemic period. According to ING Group economist James Smith, this trend, coupled with wage growth decelerating faster than expected, strengthens the case for the Bank of England to implement interest rate cuts starting in August.
Wage growth in the private sector has fallen to 5.1% from 5.9% over the past two months, with firms surveyed in the Bank of England's Decision Maker Panel anticipating further declines to 3.5% in the near future. Smith cautioned that while data revisions are possible, employment figures have declined in nine of the last ten months, reversing a 44-month period of continuous growth.
Concurrently, Bank of England Monetary Policy Committee member Alan Taylor has warned of growing risks to achieving an economic soft landing, citing a slowdown in activity more pronounced than anticipated. Taylor now supports five interest rate cuts in 2025, up from previous expectations of four, and estimates the neutral real interest rate to be between 0.75% and 1%, implying a nominal rate of 2.75% to 3% once inflation stabilizes. However, he advised against overly large cuts.
Market reactions included a slight depreciation of the pound sterling, which fell from 1.3751 to 1.3690 against the US dollar on July 2, 2025, as investors adjusted to the prospect of accelerated monetary easing. This economic backdrop has reignited debates over the balance between controlling inflation and supporting growth.
