Bleak labour market data indicates that BoE rate hikes may end soon

(Alliance News) - Some bleak data on the UK's labour market on Friday has added fuel to the rhetoric that the Bank of England may be close to ending its rate hiking cycle.

The pound has slumped in the past few days amid dovish rhetoric from the central bank and recent weak economic data. Sterling was quoted at USD1.2471 at midday on Friday in London, lower compared to USD1.2493 at the equities close on Thursday.

On Friday, there was some new evidence that showed that interest rates were doing their job. Figures showed that the UK jobs market slowed sharply in August as the weaker economic outlook depressed recruitment activity.

The KPMG and REC UK report on jobs showed permanent hires fell at the sharpest pace in three years, while temp billings contracted for the first time since July 2020.

"This contraction suggests heat may be coming out of the economy in a more pronounced way, which would suggest interest rates are having the desired effect and adds weight to the argument we're near the top of the cycle," said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.

"A looser labour market helps to keep wage expectations and bargaining power down, which in turn can help to keep inflation on a more favourable trajectory."

Whilst the results are somewhat beneficial in showing that increasing interest rates are working, Davy Research said the reading paints "a grim picture" of the UK labour market.

Further, Davy said that the Bank of England is still likely to hike rates to 5.5% at its next meeting, as the bank takes a "cautious view of surveys."

"Specifically, the MPC noted that the KPMG/REC survey is an untested leading indicator of pay growth in inflationary times," it added.

On Wednesday, Bailey hinted on Wednesday that the UK central bank was close to ending a prolonged policy of raising interest rates amid expectations that inflation will fall substantially by the end of the year.

"I think we are much nearer now to the top of the cycle," Bailey told a panel of cross-party lawmakers gathered to question the BoE chief on the state of the UK economy with UK inflation the highest among G7 nations.

"And I'm not therefore saying we're at the top of the cycle because we've got a meeting to come but I think we are much nearer to it," he added.

The BoE will be making its next interest rate decision on September 21. In August, the BoE enacted its 14th successive interest rate hike, lifting bank rate by 25 basis points. The move took the benchmark bank rate to 5.25% from 5.00% previously.

By Sophie Rose, Alliance News reporter

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