Companies reduce workforce at the swiftest rate since 2021, as per Bank of England's data

The Bank of England's latest data has painted a grim picture of the UK's economic outlook, with inflation persisting and job cuts on the rise. Bank Governor Andrew Bailey has expressed concerns about the pace of interest rate cuts due to stubborn inflation in the economy.

The Bank's Decision Maker Panel revealed that participants plan to raise their own prices by 3.8% over the next 12 months, which, if borne out, would mean private sector wages rising below the rate of inflation. This is in line with the current rate of inflation, which is expected to peak at 4% next month - double the Bank's target rate.

Rob Wood, chief UK economist at Pantheon Macroeconomics, commented on the data, stating that it shows stubborn wage and price pressures despite falling employment. He suggests that structural economic changes and supply weakness are keeping inflation high.

The chancellor, Rachel Reeves, is expected to face a budget deficit of £20bn-£40bn. Heightened costs associated with servicing such debts following recent bond sell-offs across Western economies have made more borrowing even less palatable.

The news on wages was no better, with a central forecast for an average rise of 3.6% - down from the 4.6% seen over the past 12 months. This decline is attributed to the implementation of budget measures in the spring that raised national insurance contributions, minimum wage levels, and business rates for many companies.

The data also shows that businesses have responded to 2024 budget measures by cutting jobs since April. Hospitality and retail sectors have been among the worst hit, with companies like Biogen (95 jobs cut in Baar), Migros (22 jobs cut at their electronics rental portal Yuno), and Schaerer Medical (about half the workforce reduced) reducing their workforce.

The survey showed no improvement in hiring intentions for the economy. Employment levels over the three months to August were 0.5% lower than in the same period a year earlier. The MPC will have to be cautious, according to Rob Wood, so no more rate cuts are expected this year.

Amidst these challenges, Ms Reeves is expected to raise some form of wealth tax, while other speculation has included a shake-up of council tax. Tax rises are believed to be inevitable for Rachel Reeves due to her commitment to fiscal rules concerning borrowing by the end of the parliament.

Increasing signs of labor market weakness suggest dovish risks, as concluded by Rob Wood. However, the Bank governor remains less sure over the pace of interest rate cuts ahead, underscoring the economic uncertainties that lie ahead for the UK.