Investing.com -- Deutsche Bank (ETR:DBKGn) analysts weighed in on Tuesday’s U.K. labor market data, pointing to a notable decline in May payroll figures as a key driver of the downturn.
The data revealed a decline of 109,000 payrolled employees, marking the steepest fall since the peak of the pandemic in May 2020.
This follows a revised downward figure for April, which showed a decrease of 55,000 employees. The trend has been apparent over the past seven months with a cumulative decline of 276,000 employees on payroll, and private sector payrolls experiencing an even greater reduction of over 290,000.
Despite the concerning payroll data, Deutsche Bank analysts noted that not all indicators are negative. They pointed out that the Labour Force Survey (LFS) reported an increase in employment of 89,000 in April, and the number of self-employed individuals rose by 13,000 since the end of the previous year.
Additionally, Workforce Jobs data indicated an increase in the number of employees and self-employed individuals in the first quarter of 2025 compared to the last quarter of 2024.
Analysts also observed improvements in business sentiment, with recent surveys such as the Lloyds (LON:LLOY) Business Barometer and PMI data showing enhanced future output expectations and a slight uptick in employment indices.
However, the overarching trend suggests an increase in labor market slack. Deutsche Bank expects the unemployment rate to continue to exceed the Bank of England’s equilibrium rate for the coming year.
In light of these developments, Deutsche Bank anticipates the Monetary Policy Committee (MPC) to ease its restrictive policy stance. With private-sector pay growth projected to fall short of expectations and core services disinflation on track, the bank predicts a series of quarterly rate cuts extending into the fourth quarter of 2025.
Deutsche Bank forecasts the Bank Rate to settle at 3.5% by the end of the year and to decrease further to a terminal rate of 3.25% in the first quarter of 2026, as pay settlements for 2026 are expected to align with the Bank’s inflation target.