08:08 AM EDT, 08/13/2024 (MT Newswires) -- The Bank of England's (BoE) Monetary Policy Committee's (MPC) hunch that the United Kingdom Labour Force Survey (LFS) data was overstating the unemployment rate looks broadly to be true on Tuesday -- notwithstanding the uncertainties surrounding the LFS data still, said Sanjay Raja, Chief UK Economist, at Deutsche Bank.

The big news takeaway Tuesday is that the jobless rate dropped to 4.15% -- well below the MPC's projection for Q2 2024 (4.4%). Much of the drop in the unemployment rate can be attributed to a pick-up in employment -- employment levels were up 95,000 in the three months to June 2024, stated Raja.

Momentum also looks to be on the up, the economist noted. The payroll data highlighted a further 24,000 increase in the number of payrolled employees. It looks like the big jump in the claimant count level was due mainly to administrative changes in earnings thresholds.

Pay data continues to broadly follow the MPC's projections is "encouraging" news, pointed out Raja. AWE Total Pay came in a tenth below survey expectations at 4.5% three-month/year-over-year.

More importantly for the MPC, private sector regular pay came in at 5.2% (3-m/y-oy) -- just a tenth above the MPC's projection, according to Deutsche Bank.

Forward-looking pay data look encouraging too. The HMRC Payroll data points to a tempered increase in pay growth in July. Pay settlement data -- as per the BoE's own DMP survey and the latest CIPD survey point to cooling pay deals in the year to come.

Tuesday's data is consistent with a gradual and cautious dialing down of restrictive policy. However, firming gross domestic product (GDP) growth, if sustained, could lead to a firming labor market recovery - which could result in a more shallow rate-cutting cycle than the bank's baseline. For Deutsche Bank, the odds of a mid-cycle pause are becoming more "material."