UK Unemployment Hits Three-Month High, Boosting Rate Cut Speculation

According to recent economic data, UK unemployment has risen for the third consecutive month, reaching 4.3% in the three months to March – the highest rate since last summer. This development is likely to embolden the Bank of England (BOE) to reduce interest rates in the near future, as it aligns with the BOE’s forecasts and indicates a cooling labour market. The BOE previously hinted that a rate reduction could occur as early as June, contingent upon subsiding inflationary pressures. The BOE’s Governor, Andrew Bailey, has emphasized that lowering rates would depend on the data conforming with projections. Elsewhere, wage growth remained steady at 6%, in accordance with the BOE’s predictions, while the number of individuals in employment declined by 178,000. These figures are crucial indicators for the BOE ahead of their upcoming June policy meeting. Furthermore, the pound experienced minimal fluctuation against the dollar, trading at $1.2560. The BOE had anticipated unemployment of 4.3% in the initial quarter, with additional increases projected over the ensuing two years. Nonetheless, the BOE anticipates a significant deceleration in wage growth starting in the second quarter. The BOE has expressed caution regarding the reliability of official statistics amidst concerns about response rates following the temporary suspension of the Labour Force Survey last year. Prime Minister Rishi Sunak is hoping for pre-election interest rate cuts, which he believes will improve consumer sentiment prior to an imminent general election. However, households have endured financial setbacks resulting from higher borrowing costs and double-digit inflation, and it will take some time for them to regain lost ground in living standards.