UK payrolls plunge as employers cut jobs ahead of interest rate decision

UK employers cut jobs at the fastest rate in nine months during August, as a prolonged cooling in the labour market deepened ahead of the Bank of England's interest rate decision.

The number of workers on company payrolls fell by 26,000 last month, according to provisional figures from the Office for National Statistics. The drop was far sharper than the 5,000 decline economists had expected, and follows a downwardly revised fall of 19,000 in July.

Vacancies and unemployment on the slide

The data suggests businesses are pulling back on hiring as economic uncertainties mount. Job vacancies fell by 8,000 in the three months to August, hitting a five-year low of 702,000.

At the same time, companies are increasingly turning to layoffs. The redundancy rate rose to 3.9 per 1,000 employees in the three months to July, its highest level since the start of the year.

The official unemployment rate held steady at 4.9 per cent for the three months to July. However, the statistics body repeated its warning that these household survey figures should be treated with caution due to ongoing data quality issues.

Meanwhile, underlying wage growth remained stable. Regular pay, excluding bonuses, grew at an annual rate of 3.5 per cent in the three months to July, unchanged from the previous period.

What this means for interest rates

The softening labour market would normally offer reassurance to the Bank of England's Monetary Policy Committee, which meets on Thursday to decide on interest rates. Slower wage growth and weaker hiring tend to ease concerns about domestic inflation pressures.

But the central bank’s decision has been complicated by external pressures. Oil prices jumped above $109 a barrel on Monday amid escalating tensions between the US and Iran, raising fresh fears of an energy-driven inflation spike. Economists have warned that headline inflation is on track to rise above 4 per cent, which could force a more hawkish tone from the central bank despite the cooling jobs market.

Financial markets reacted quickly to the data. The pound fell by 0.2 per cent to $1.3472 following the release, while government bond yields rose, with the 30-year gilt yield climbing four basis points to 5.93 per cent, its highest level since 1998.

Employers face autumn uncertainty

Businesses are also grappling with domestic policy shifts. Employers are pausing hiring decisions as they await Prime Minister Andy Burnham’s first budget on 28 October.

The combination of international tension and domestic fiscal changes has left the UK in what Bank of England Governor Andrew Bailey has described as a "low hire, low fire" state, though the latest redundancy figures suggest the "fire" element may be starting to pick up.