Job market easing makes case for interest rate cut
Pay rates for temporary staff in the UK rose last month at the fastest pace in nearly a year amid signs that the job market squeeze is easing.
Permanent hiring fell by the smallest amount in 10 months, while billings for temporary staff dropped by the least since January, according to the Recruitment and Employment Confederation’s (REC) latest report on jobs.
The UK job market has come under close scrutiny as Bank of England officials have said they want to see signs that the labour market is easing before they are comfortable cutting interest rates.
The most recent data indicates that the downturn might be bottoming out after previous REC surveys had depicted a subdued outlook on hiring and pay for newly employed workers.
"The critical moment in any labour market slowdown is the point at which demand starts to turn around. Today's hiring data suggests that point is close, with fewer recruitment firms reporting a drop in demand," REC chief executive Neil Carberry said.
Read more: Bank of England keeps interest rates at 16-year high
Starting salaries for permanent roles were impacted by the change to the national minimum wage, which increased by nearly 10% in April.
Part of the growth in temporary pay — the fastest since June 2023 — reflected April's 9.8% rise in the minimum wage, Carberry said.
“Firms have told us all year that they will be willing to hire and invest in their business when confidence returns to the wider economy — and there is a glimmer of lower inflation and the prospect of lower interest rates starting to drive that now,” he added.
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The most recent official data, for the three months to the end of February, showed annual wage growth of around 6%, while the unemployment rate increased to a six-month high of 4.2%.
Rate-setters at the Bank of England kept interest rates on hold at 5.25% for a sixth consecutive time on Thursday.
The National Institute of Economic and Social Research (NIESR) expects the Bank of England to wait until August or later before it starts to cut interest rates from 5.25%, as inflation, particularly in the price of services, has proven stubborn.
The analysts expect two rate cuts this year and two next year, with cautious progress over the next five years eventually taking the base rate to 3.25% in 2028.
Watch: Bank of England governor talks up interest rate cut prospects as inflation eases to 3.2%
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