UK jobs market 'cooling' as households squeezed by drop in real income growth

The UK jobs market continues to cool on the back of the government’s business tax raid, but yesterday morning’s report offered some mild respite and a glimmer of hope that there may yet be light at the end of the tunnel, however faint.

A smaller drop in payrolled employment in July (-8.4k vs. -26.4k in June) offers a crumb of comfort, albeit this still extended the worst streak of contractions in jobs on record, outside of the pandemic.

Thankfully, the ascent in the unemployment rate has halted (this remained unchanged at 4.7%) and claims for jobless benefits unexpectedly dropped for the second straight month (-6.2k). While the worst of the jobs market downturn may be behind us, we are far from out of the woods just yet.

Hiring remains fragile as businesses continue to come to terms with the higher costs associated with the recent hike to National Insurance and the minimum wage, not to mention the uncertainty surrounding US tariffs. Households are also continuing to be squeezed by the drop in real income growth, which is now at its lowest level in two years (+1.1%).

This presents a challenging environment for the UK economy, which looks set to post only modest growth in the second half of the year. Yet, the data hasn’t shifted the dial too much for the Bank of England, which may still hold rates steady until at least December (only 18bps of cuts are priced in for the rest of the year).

Q2 GDP figures are next up on Thursday morning, with barely noticeable growth eyed.