Seams starting to fray in Britain's labour market with rate cuts to come

He said: “The seams are starting to fray in Britain’s labour market. Unemployment and jobless benefit claims are both up, job vacancies have fallen to four year lows and wage growth is slowing, though it remains elevated. We have also seen an alarming drop in payrolled employees, which dropped by an eye-watering 109k in May alone - the largest monthly decline outside of the pandemic since records began in 2014.

Our biggest concern is that the worst may still lie ahead. British firms are in the midst of the perfect storm of challenges, forced to hold off on hiring and increase layoffs after April's hike to employer National Insurance contributions and the minimum wage. Small and medium-sized businesses are particularly vulnerable, with risks compounded by intense global trade uncertainty and the spectre of further Labour tax hikes in the autumn.

Sterling sold off across the board following the release of the data as markets swiftly priced in a more aggressive pace of cuts from the Bank of England. We think that a summer cut is back in play, with a good chance we now see a couple more rate reductions before the year is out.