The Bank of England faces a dilemma at its meeting next month: inflation is accelerating again but the labor market is showing increasingly clear signs that the economy needs support.
New data from the Office for National Statistics Thursday showed the unemployment rate rose to 4.7 percent of the workforce in May, while the number of people claiming unemployment benefits rose by nearly 26,000 in June.
There was also a further slowdown in the pace of wage growth, which the BoE has seen as one of the main factors stopping it from cutting interest rates more aggressively. Average wages excluding bonuses rose by 5.0 percent in the year to May, down from 5.3 percent in April.
In part, the numbers reflect employers’ reaction to the rise in their National Insurance contributions, which took effect in April. Companies had signaled via various surveys that they intended to lay workers off or award smaller pay raises to offset the rise in their labor costs.
The numbers weren’t unambiguously weak though, as the economy continued to create jobs: Employment grew by 134,000 in the three months through May, well above the 46,000 expected by analysts.