Nomura’s Josie Anderson, George Buckley, Andrzej Szczepaniak and David Seif highlight a softer UK labour market, with falling payrolls, rising unemployment and weaker vacancies. They stress that labour data lag the Iran war shock, but see current softness as the starting point. Nomura expects the Bank of England to hold rates in June, then hike in July 2026 before later cuts in 2027.

Softer jobs data and BoE rate path

"There were several softer elements in today’s UK labour market report, with a 100k fall in payrolls (though this is prone to revision), a rise in the unemployment rate, weak private sector regular pay growth and declining vacancies."

"We highlight that the labour market is a lagging indicator, so even though we have March and April data in this report, we would not expect the impact of the Iran war to show clearly for some time. Yet, the softer data today show the starting point for the economy at the beginning of the war, and it is likely the war will add to softness in future reports."

"The Bank of England (BoE) sees the unemployment rate rising further (to peaks of 5.5-5.7% across its three scenarios from the latest Monetary Policy Report). We expect it to leave its rates on hold at its next meeting on 18 June, as policymakers wait for more evidence on the effects of the war, and today’s soft data add to the argument to be cautious about hiking rates."

"We then expect the BoE to raise rates in July 2026 to 4.00%, to show it is taking concerns about second-round inflation effects seriously. A soft labour market could limit arguments that there will be notable second-round effects from the current energy shock. However, we only have one 25bp hike in our forecast, and we also expect policymakers to cut rates twice to what we think will be close to neutral in July and November 2027 (to 3.50%)."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)