25 July 2025: Private sector job cuts are accelerating

The Bank of England’s Monetary Policy Committee is likely to face some tough decisions over its four remaining meetings in 2025.

While Andrew Bailey and his colleagues would clearly like to cut interest rates at least twice more, the cost of living is rising again, and inflation looks unlikely to fall to the Bank’s 2% target any time soon.

It may well be that the NPC will decide to “bite the bullet” and cut rates on August 7th, but such a decision would be a brave or foolhardy choice depending on one’s view of the economy.

The unemployment rate increased to 4.7% annually between March and May, according to official figures published on July 18. This is the highest level in almost four years.

Survey data from the Office for National Statistics (ONS) suggests some firms are not recruiting new workers or replacing those who have left, as business confidence weakens. Between April and June, the estimated number of job vacancies fell by 56,000.

The ONS report did include some good news, though, in the form of a revision to May’s payrolls figure. The 109,000 drop in payrolled employees was revised to a more moderate decline of 25,000

The data eased some of the pressure on the Bank to cut rates twice before the end of the year. The original figures had economists considering four cuts, one for each meeting for the rest of the year.

Independent MPC member Catherine Mann spoke earlier in the year of her belief that if the decision is to cut rates, then they should “make a splash” and cut by more than twenty-five basis points, since the “drip feed” of cuts takes far longer to feed through into the economy.

The bold move would be to cut by fifty points in August and consider another fifty in November. That is unlikely to be the path that is taken, and rates remaining on hold could easily be the stance for the rest of the year.

Headline inflation is likely to run above 3% until next April, and above target throughout 2027 too. The MPC no longer has the luxury of simply looking through inflation.

The Bank of England has a tough tightrope to walk. It needs to support growth at the same time as bringing inflation under control.

Inflation jumped by more than expected in June, but at the same time, the economy is slowing. GDP dropped for two months in a row in April and May. This makes it more difficult to decide whether to speed up or slow down the pace of cuts.

Bailey has repeatedly said it will take a “gradual and careful” approach to interest rate cuts, but not all committee members seem to agree. In June, Dave Ramsden, Swati Dhingra, and Alan Taylor all voted for a faster pace of monetary policy easing, resulting in a 6-3 split.

Furthermore, with the Chancellor expected to raise taxes, although how she will do that is still being debated, in October, the Bank of England will again be left to pick up the pieces.

The pound failed to break above its short-term resistance level yesterday, falling back to 1.3503 and closing at 1.3511.

Director of the Federal Housing Finance Agency (FHFA) Bill Pulte believes that Jerome Powell should have resigned before President Trump visited the Federal Reserve yesterday.

Pulte has become one of Powell’s most prominent critics, although he does appear to be aping the views of the President, not giving any “original” reasons for his displeasure at the Fed Chair’s performance.

Pulte has displayed his disapproval of Powell several times in recent weeks. Earlier this month, he urged a congressional investigation of the Fed Chair over the central bank’s $2.5 billion headquarters renovation in Washington, D.C.

Mimicking Trump, Pulte has called on Powell to lower the federal funds rate. Pulte believes that lower rates will spur home sales by lowering mortgage rates.

“By improperly keeping interest rates high, Jerome Powell is trapping homeowners in low-rate mortgages and choking off existing home sales—directly fueling the housing supply crisis,” said Pulte in an X post last month. The 30-year fixed-rate mortgage currently sits at 6.74%.

Several members of Trump's “inner sanctum” have followed his lead, although Congress believes that the vehemence of the criticism is impinging on the independence of the Central Bank.

A straw poll of economists has shown that the majority favour the FOMC’s caution in holding off on rate cuts, given the uncertainty that the threat of tariffs is driving, while inflation remains far from controlled.

Polte and his acolytes tend to ignore the threat of inflation should Trump remain true to his word and, for example, levy an additional 30% tariff on imports from the European Union. The FOMC does not have that luxury, given its dual mandate.

Meanwhile, the President is still fighting those members of both sides of the aisle who want him to “come clean" about his friendship with the late convicted sex offender Jeffrey Epstein.

A majority of his critics now feel that it would be in his own best interest to make a statement confirming what is said in sealed court documents from Epstein’s trial.

Yesterday, Epstein’s long-term associate, Ghislaine Maxwell, met with Florida’s Deputy Attorney General as the Administration tries to extricate itself from the growing furore.

Economic activity grew at a sharply higher rate in July, a pair of S&P surveys of purchasing managers found, though the growth was concentrated in the services sector, while manufacturing struggled. In the services sector, the S&P flash PMI jumped to 55.2 in July, from 52.9 in June, a seven-month high.

The flash U.S. manufacturing PMI, meanwhile, slumped to a seven-month low of 49.5 in July, from 52.9 in June. Readings below 50 indicate contraction, making July the first deterioration in the U.S. factory sector this year.

The dollar is more driven by monetary policy, inflation and trade policy than activity and output, so its reaction was muted. The index rallied marginally in this holiday-influenced trade, reaching a high of 97.52 and closing at 97.49.

Isabel Schnabel’s recent comments regarding a high bar for the continuation of interest rate cuts must have reverberated around the conference room in which the Governing Council of the ECB met yesterday, since there was barely a dissenting voice as the Council voted to leave rates unchanged.

The final meeting before Christine Lagarde and her colleagues depart for their annual holidays was more about self-congratulation than any serious plan to cut interest rates again.

In her address to the financial press, Lagarde said European Central Bank policymakers pushing for another cut in interest rates face an uphill battle, with inflation at 2% and the economy withstanding trade turbulence.

A hold looks like the baseline for September after eight reductions since June 2024.

Some observers suggested the onus is on those seeking further easing to justify their stance, rather than those opposed to more action having to make their case.

Underlying the ECB’s actions is the fear that there will be a major reaction to what President Trump will decide next month regarding tariffs on U.S. imports of raw materials and finished goods that originate in the European Union.

There are unlikely to be any inflationary consequences from the tariffs, but the effect on growth and output could be severe. The Eurozone economy appears to be on the cusp of a level of growth that the ECB should find acceptable, although following 200 basis points of cuts over the past year, growth remains sluggish.

German business activity continued to grow marginally in July, though at a slightly slower pace than in June, as manufacturing output expanded for a fifth consecutive month and services activity stabilised, a survey showed on Thursday.

The HCOB German flash composite Purchasing Managers' Index, compiled by S&P Global, fell to 50.3 points in July, down from 50.4 in June and below the 50.7 forecast in a Reuters poll.

The composite index, which tracks the services and manufacturing sectors that together account for more than two-thirds of the euro zone's largest economy, is now marginally above the 50.0 mark that separates growth from contraction.

The services sector improved to 50.1, up from 49.7 in June, reaching a four-month high and just beating a forecast of 50.0.

Manufacturing remained mired in a downturn at 49.2, below the growth threshold, but was up from 49.0 last month and only slightly short of the forecast for 49.5.

However, the fact that production in this sector has now expanded for five months in a row is encouraging," In addition, the service sector is no longer acting as a drag on the economy, he said, and after 10 months of decline, July marked the first rise in new business in nearly a year.

"The brightening outlook is in line with expectations that rising real wages and expansionary fiscal policy should help the sector as a whole to regain its footing.

The Euro barely reacted to either the ECB decision or the data. It fell marginally to a low of 1.1730 and closed at 1.1748, down 24 points on the day.

Have a great day!