Softening labour market to limit aggressive MAS tightening—report

Retrenchments rose to 4,620 in the second quarter from 3,830 in the first.

Singapore's labour market showed further signs of slack in the second quarter of 2026, and UOB said the softening could temper how much of the current supply-side cost pressures feed through into consumer prices.

UOB's Labour Market Pressure Index fell to minus 1.77 in the second quarter from minus 1.41 in the first, reflecting weaker hiring activity, low resignation rates, rising retrenchments and a slower pace of re-employment after job loss. The bank said the index correlates strongly with both core and services inflation.

Retrenchments rose to 4,620 in the second quarter from 3,830 in the first, concentrated in the services sector, with mature workers aged 40 to 59 most affected.

The six-month re-entry rate into employment after retrenchment fell to 54.9% from 60.7%. The recruitment rate declined to 1.4% from 1.6%, which UOB attributed to caution amongst firms amidst geopolitical and macroeconomic uncertainty, alongside the possibility of AI-related labour substitution.

On the positive side, the overall unemployment rate edged lower to 1.9% in June from 2% in May, and the job vacancies-to-job seekers ratio rose slightly to 1.48 from 1.46, remaining above one.

The Ministry of Manpower surveys also showed an improvement in near-term hiring intentions, with the proportion of firms intending to hire over the next three months rising to 48.7% in July from 43.9% in June.

UOB said the labour market softness could limit the pass-through of energy price shocks from the Middle East conflict and food inflation pressures from a potential Super El Niño into broader consumer prices, and may mean those shocks do not require the aggressive pace of MAS tightening seen in 2021 to 2022, when policy was tightened five times including three upward re-centring moves.

In its base case, UOB expects MAS to hold its current Singapore dollar nominal effective exchange rate policy settings, with the slope remaining at an estimated 1.25% per annum following tightening moves in April and July.

The bank cited repeated downside surprises in core inflation as supporting that view.

UOB said it nonetheless acknowledged the risk of a further slight slope steepening of around 25 basis points at either the October 2026 or January 2027 monetary policy statement, pointing to a recent reacceleration in energy prices and strengthening food inflation momentum, with adverse weather events posing additional upside risks to food prices.