After disappointing employment figures in May and higher-than-expected inflation this week, the Bank of England was clearly under pressure.
Indeed, beyond what is written in their mandates, central banks all have more or less the same objective: to maintain price stability (i.e., contain inflation) while promoting economic growth (i.e., job creation).
However, in the UK, the labor market has been deteriorating for several months, while inflation remains high. This puts the Bank of England in an uncomfortable position: raising rates (or even just keeping them high) would slow down economic activity even further. Meanwhile, lowering rates to support growth would risk fueling inflation.
A revision and less pressure
Last month's employment figures were particularly worrying, with 109,000 jobs lost in May. At the time it was feared that the deterioration in the labor market was accelerating.
This figure was finally revised today. In May, the number of employees fell by only 25,000. The trend accelerated slightly in June, with 41,000 job losses.
Sources: Office for National Statistics, Trading Economics
Nevertheless, despite the concerns, the overall picture is that the labor market continues to slow down, but there is no acceleration to suggest that the economy is turning around completely.
In addition, wage growth continues to slow. Lower wage pressure should help curb inflation in the coming months.
Wage growth. Three-month average on an annual basis. Sources: Macrobond, ING
Economists expect these two trends to continue: a slowdown in the labor market and a slowdown in inflation, which should enable the Bank of England to lower interest rates again.
The Bank of England began its monetary easing in August last year. Since then, it has cut rates four times, by 25 basis points each time. The consensus expects two further rate cuts by the end of the year.
