Thousands of jobs were lost in June, according to official figures, intensifying the pressure on the Bank of England to address the fallout from Chancellor Rachel Reeves' £20bn tax raid in its forthcoming August interest rate decision.
Bank Governor Andrew Bailey has signalled that a "softening" in the labour market might compel the Monetary Policy Committee to consider more significant cuts than anticipated, as employers' national insurance contributions (NICs) hikes prompt businesses to pass on cost increases to consumers.
The tally of employees on the payroll saw a reduction of approximately 41,000 in June, while the unemployment rate climbed to 4.7%.
Over the past year, around 178,000 individuals have been made redundant. Just two months ago, the unemployment rate stood at 4.4%, as reported by .
The ONS also reported a quarterly decrease of 56,000 job vacancies in the º£½ÇÊÓƵ, totalling 727,000, marking the 36th successive period of declining vacancy numbers, "with vacancies decreasing in 14 of the 18 industry sectors."
In data that will undoubtedly draw the attention of both markets and bank officials, the ONS adjusted its May company payroll decline figure from 109,000 to 25,000.
ONS director of economic statistics Liz McKeown said: "The labour market continues to weaken, with the number of employees on payroll falling again, though revised tax data shows the decline in recent months is less pronounced than previously estimated."
Wage growth excluding bonuses dropped to 5% in the three months to May, with last month's figures showing the rise in average earnings had been 5.2%.
Pay growth including bonuses was also 5% in the latest release. City forecasters polled by Bloomberg suggested wage growth would be 4.9%.
Fresh jobs data published by the Office for National Statistics has left the bank in a difficult place given inflation hit 3.6% in the year to June.
Whereas bank officials worried about pay increases being too high after the last monetary policy report was published in May, rate-setters have turned to monitoring the risk of "slack" in the labour market dampening demand.
Financial markets broadly expect the bank to reduce interest rates by 25 basis points at August's forthcoming decision, after Bank Rate remained unchanged at 4.25% in June.
Most Monetary Policy Committee (MPC) members acknowledged that inflation risks persisted, despite three rate-setters—including deputy governor Dave Ramsden—supporting a 25 basis point reduction.
However, economists remain divided on the extent to which the bank might pursue rate cuts in future meetings, as the combination of employment reductions and elevated inflation presents a dilemma for bank officials.
Analysis from Pantheon Macroeconomics indicates that only one interest rate cut is anticipated over the coming 12 months, owing to inflation's persistent nature. Meanwhile, competitor consultancy Capital Economics predicts interest rates could plummet to as low as three per cent by the close of 2026.
