UK Labour Market Loosens Further, Q2 GDP Growth Exceeds Expectations

This week the ONS published labour market and GDP data for Q2. Unemployment came in at 4.7%, up from 4.5% in Q1, reflecting ongoing subdued jobs growth, while pay growth decelerated further. The GDP data surprised slightly on the upside – most analysts were expecting a quarterly gain of only 0.1% in Q2 while in the end it came in at +0.3%. However, the composition was perhaps a bit softer than the headline figure suggests, with consumption growth subdued and business investment down. Overall, the data will not have surprised the Bank of England – they released new forecasts with their Monetary Policy Report last week which envisage GDP growth of 1.25% this year, with unemployment projected to rise to just under 5% in early 2026. The market is now not expecting another 25bp rate cut until February next year on foot of recent signs inflation is proving somewhat more persistent than hoped.

Bank of Ireland Economics Weekly Aug 15th