Pay increases for employees in the UK have reached their lowest level in over three years, as businesses reduce hiring efforts. This trend signals a potential cooling in the labor market, which could lead the Bank of England to consider further interest rate cuts in the upcoming months.

Recent labor market survey data reveals that salary growth for permanent roles decreased for the third consecutive month in September, marking the slowest increase since February 2021, and falling below long-term historical averages.

Additionally, the number of permanent job vacancies declined in September, as companies expressed hesitation caused by “uncertainty… particularly regarding government policy in light of the budget due in late October,” as indicated by the Recruitment and Employment Confederation and KPMG, who conducted the survey.

According to Jon Holt, the UK chief executive at KPMG, “The Bank of England is likely to view this reduction in wage pressures favorably, which could bolster the argument for a further interest rate cut at the upcoming meeting in November.”

Members of the Bank’s monetary policy committee (MPC) have been closely monitoring wage growth trends and corporate pricing strategies to determine the extent of potential interest rate cuts, following the first policy easing in four years that occurred in August, when the base rate was lowered from 5.25 to 5 percent.

Financial analysts predict that further quarter-point rate reductions are anticipated in November and December, after Andrew Bailey, the Bank’s governor, noted that the MPC might consider a more assertive approach to monetary easing.

Recent inflation data expected for this month suggests that consumer price inflation dipped below the Bank’s 2 percent target in September for the first time since 2021, a development that may encourage those on the MPC.

The survey also highlighted a continuous downturn in job vacancies, falling for the 11th month in a row, as businesses remain cautious regarding hiring.

Holt indicated that many companies are “halting recruitment in anticipation of the budget, seeking greater clarity on future taxation and economic policies.”

This trend aligns with various indicators from households and businesses reflecting declining confidence in the economy, with concerns raised by Labour regarding potential “painful” tax increases and spending adjustments.

Holt emphasized, “The government must ensure that chief executives feel confident about the macroeconomic landscape in the UK as well as the pathway to more robust growth.”