UK jobs market shows some recovery signs as BoE mulls rate hike

By William Schomberg and Suban Abdulla

LONDON, Oct 20 (Reuters) - British workers have seen another modest rise in the pace of pay growth and there were other hints of a small recovery in the jobs market, according to official data which could bolster the case for a Bank of England interest rate hike next month.

After a run of stronger-than-expected economic growth figures, Tuesday's figures suggested that a weakening of hiring could be bottoming out, offering some good news to finance minister John Healey ahead of his first budget next week.

Average weekly earnings, excluding bonuses, grew by 3.7% in the three months to August compared with the same period in 2025, the Office for National Statistics said, extending a gradual pickup since touching a low of 3.4% earlier this year.

A Reuters poll of economists had pointed to a weaker increase of 3.6%. The figure for the three months to July was revised up slightly to show a rise of 3.6%.

Pay growth in the private sector also gathered a bit of pace, rising to 3.0% from 2.9%, for its first increase since the end of 2024.

'SOME RESILIENCE' IN LABOUR MARKET

A preliminary measure of payrolled employees from Britain's tax office rose by 13,000 in September. The change for August was revised to show an increase of 1,000 compared with a provisional estimate of a decline of 26,000.

"The latest figures indicate a labour market showing some resilience, echoing the wider economy's better-than-expected performance," Jack Kennedy, senior economist at jobs website Indeed, said.

However, he said the chance of a stronger turnaround was dependent on Healey's budget. His predecessor Rachel Reeves raised a tax on employers in 2025, which was followed by a fall in hiring.

"Today's figures confirm a labour market that is treading water," Kennedy said. "The question is whether the budget gives employers a reason to start swimming."

Britain's unemployment rate — which is derived from a survey that the ONS is overhauling — dropped to 4.7% in the three months to August, its lowest since mid-2025.

Sterling rose against the US dollar after the data was published.

The BoE is looking for signs that the Iran war energy price shock is turning into broader inflation pressure in the economy including through demands for higher pay.

There were some details in Tuesday's data that suggested the jobs market remains weak.

Job vacancies in the three months to September fell to 691,000 from 704,000 in the three months to August, dipping below 700,000 for the first time since the three months to April 2021 and the lowest outside the COVID-19 pandemic since 2014.

"The continued fall in vacancies is a flashing red warning light for the labour market, suggesting that a damaging side effect of this year's AI-fuelled economic growth has been weaker hiring demand, compounded by elevated employment costs," Suren Thiru, chief economist at the Institute of Chartered Accountants in England and Wales, said.

The ONS said the fall in vacancies was concentrated among smaller businesses smarting from the rise in labour costs.

Investors expect the BoE will raise its benchmark Bank Rate to 4% at the November meeting of its Monetary Policy Committee. So far it has not followed the US Federal Reserve and the European Central Bank in increasing borrowing costs.

Governor Andrew Bailey said last week the longer the war goes on, the harder it will be for the BoE not to respond, but he also said it was still "early days" and inflation pressures remained "quite subdued".

Official data due on Wednesday is expected to show headline consumer price inflation accelerated in September to 3.4% from 3.1% in August, moving further above the BoE's 2% target, according to the economists polled by Reuters. Underlying measures of inflation are also expected to have sped up.

(Writing by William Schomberg, graphics by Pasit Kongkunakornkul, editing by Suban Abdulla and Andrew Heavens)