UK equities rise as weak jobs data cools Bank of England hike bets

UK shares climbed as a cooling labor market eased fears of another near-term Bank of England rate hike, giving investors a reason to buy back risk after a run of rate-sensitive jitters. The FTSE 100 rose 0.61% and the midcap FTSE 250 added 0.81% after tax office data showed April payrolls fell by 100,000 from March, while the unemployment rate edged up to 5% in the three months through March from 4.9% previously.

The softer numbers mattered because they cut against the idea that the central bank may need to stay aggressive much longer. Traders still priced a 29.1% chance of a June rate hike, but that was a smaller probability than before the labor release. Sanjay Raja of Deutsche Bank said the report would “stop the MPC in its tracks,” while James Smith of ING said the bank was still forecasting a June increase but that it was “far from guaranteed.”

The data showed a labor market that is still strong by historical standards but clearly losing some heat. The Office for National Statistics said payrolled employees stood at 30.2 million in April, down 210,000 from a year earlier, and the April estimate was provisional and likely to be revised. Vacancies for February to April fell by 28,000 to 705,000, the lowest level since early 2021 and still below pre-pandemic levels, suggesting firms are pulling back on hiring as demand softens.

For markets, the relief showed up well beyond rate-sensitive index moves. Investment banking shares jumped 2.58% and retailers rose 2.49%, while IG Group surged 10.22% after lifting its annual and medium-term revenue forecasts for the second time this year. The broker said the upgrade reflected market volatility and strong trading activity, a reminder that macro data and company guidance can push sentiment in the same direction even when the underlying story is mixed.

That mix is what makes the jobs figures so important outside trading desks. A weaker labor market can cool wage growth and eventually take pressure off mortgage rates and consumer borrowing costs, but it also points to slower momentum in the wider British economy. The Bank of England held Bank Rate at 3.75% on 30 April, with inflation at 3.3%, above its 2% target, and its next policy meeting is due on 18 June. The bank now has to balance a softer jobs backdrop against inflation that is still uncomfortably above target.

Politics added another layer of uncertainty. Keir Starmer has faced growing pressure from Labour lawmakers after poor local-election results, with 96 MPs calling for him to resign by mid-May, even as he has said he will stay on. That backdrop leaves markets pricing not just the next rate decision, but the broader path of the British economy as hiring slows, vacancies fade and investors judge how much pain the Bank of England is willing to tolerate before cutting back on any talk of more tightening.