The prospect of the Bank of England cutting interest rates further in the near future has been raised after a closely watched report suggested the UK jobs market is showing signs of cooling.

Researchers found the pace of pay rises slowed last month, while the hiring of temporary and permanent staff continued to decline.

The report, based on a survey of around 400 recruitment and employment consultancies in July, said vacancy numbers also fell for the ninth month in a row.

The Recruitment and Employment Confederation (REC) and KPMG, which carried out the research, said there was growing optimism among firms about the outlook for the UK economy.

The findings will be closely watched by the Bank of England, which cut interest rates for the first time in more than four years earlier this month after inflation fell back to its 2% target.

Governor Andrew Bailey had expressed concern last year that the pace of salary increases was helping to fuel inflation, contributing to the Bank’s decision to raise rates to try and bring it back down.

Signs that the pace of pay rises is now easing are likely to influence the Bank’s thinking, although other key data will also have a major impact, including the latest inflation figures which are due to be published next Wednesday.

However, financial markets have now priced in that there is a 92% chance of an interest rate cut in November, according to stock exchange data on Thursday morning following the publication of the report.

Investors also reckon there is a 37% chance of a cut in September.

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Mr Bailey expressed caution over further imminent cuts during an interview with Sky News following the Bank’s decision to reduce rates from 5.25% to 5%.

However, the REC and KPMG report is likely to be influential amid concerns over the accuracy of the Office for National Statistics’s official employment figures, which are based on a survey which has suffered from low participation rates since the pandemic.

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‘Green shoots’

The REC and KPMG report said: “Despite making fewer appointments in July, companies continued to raise permanent staff salaries. The rate of inflation was again marked, though a little softer than in June and below the survey average…

“Temp pay also increased, although the rate of inflation was marginal and the weakest for nearly three-and-a-half years. Higher temp staff availability weighed on pay rates.”

KPMG‘s UK chief executive Jon Holt said: “With forecasts for economic growth improving and potential further interest rate cuts over the coming months there are green shoots of economic recovery.

“But it’s still early days for this new government and businesses may be cautious to hit go on their full recruitment and investment strategies until they have heard more from the chancellor in her autumn budget.”

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The REC’s deputy chief executive Kate Shoesmith added: “Employers are gradually emerging from the woods, gaining optimism for their businesses and the broader economy…

“The weaker growth in both salaries and temp pay suggests that employers are keeping pay in line with inflation as the Bank of England want and the interest rate cut is welcome. Employers will need more of the same to maintain confidence.”

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