MNI BRIEF: BOE Bailey Sees Signs Labour Market Cooling

The latest UK labour market data was a tale of two parts, showing evidence of cooling but with pay growth still running too high, Bank of England Governor Andrew Bailey said Tuesday.

In comments at the mid-year Financial Stability Report press conference, Bailey said levels of pay growth were "not consistent with the inflation target" but he added that there were "some signs of the labour market cooling."

The data showed headline unemployment rate rising from 3.8% to 4.0%, and average weekly earnings excluding bonuses up 7.3% in the three months through May, Bailey noted that the stress tests on the UK banks showed they were capable of withstanding a marked rise in unemployment along with a further rise in interest rates, suggesting that any plausible scale of loosening in the labour market would not endanger financial stability. (MNI INTERVIEW: Real Wage Growth Boost In Coming Months For UK)

The major UK banks were stress tested against a scenario that included unemployment more than doubling, to 8.5%, with Bank Rate peaking at 6%, which is a little below current market pricing, as inflation peaks at 17%.