UK unemployment falls to 4.7% and pay growth beats forecasts, firming bets on a Bank of England rise

UK unemployment fell unexpectedly to 4.7%, The Guardian reported⁷. Wage growth rose a little in the three months through August as unemployment fell, according to The Wall Street Journal¹. Annual weekly earnings growth excluding bonuses rose to 3.7%, from an upwardly revised 3.6%, the Journal reported², and Traders Union said the figure surpassed forecasts and prompted closer scrutiny from the Bank of England over inflation risks¹⁰.

The Financial Times reported that the number of people in payroll employment edged up and described the labour market as stabilising before the Budget³. A separate FT report said the market had rebounded with stronger employment¹². The BBC added a qualification: small firms cut back hiring, citing labour costs as a key factor, according to the Office for National Statistics⁶.

Why it matters to investors

The data raise the likelihood that the Bank of England will raise its key rate next month, the Journal reported¹. Bloomberg said the jobs and wage figures strengthen the case for rate rises⁵, and Pound Sterling Live argued that they remove the labour-market slack the Bank’s dovish majority had relied on⁹. The Guardian reported that the Bank is widely expected to raise rates at next month’s Monetary Policy Committee meeting in response to higher prices⁷.

Reuters reported that sterling rose as the data reinforced bets on a rate rise⁴. So far the Bank has not followed the Federal Reserve and the European Central Bank in raising borrowing costs after the surge in energy costs, KFGO reported⁸. A rise would bring Britain into line with them⁸.

Yahoo Finance described the figures as showing some signs of recovery, with the Bank mulling a rate rise next month¹¹. Taken with the BBC’s report on small firms, the picture is of firmer pay and lower unemployment alongside caution among smaller employers^6,11.

What to watch

Fiscal policy is the other variable. The Guardian reported that the data arrive as the chancellor’s first budget looms⁷, and Bloomberg reported that the chancellor has ruled out increasing capital gains tax in the budget⁵.

The Bank of England’s decision next month is the next test, with markets now leaning toward a rise^4,7. The FT’s description of a market that is stabilising rather than accelerating is the counterweight to that view³.