Rolling coverage of the latest economic and financial news, including the UK jobs report for October-December 2025
The chances of a cut to UK interest rates next month have risen, following this morning’s data showing a rise in unemployment and a slowdown in wage growth.
The City money markets now indicate there’s a near-75% chance that the Bank of England lowers interest rates to 3.5% at its next meeting, in March, up from 69% last night.
Unemployment is up and hiring surveys are still getting worse. That said, the weakness is still heavily concentrated in consumer-facing industries – a legacy of last year’s sizable payroll tax (National Insurance) and National Living Wage increases. Hospitality payrolled employment may be down almost 3% since the start of 2025, but it is still 2% higher than pre-Covid levels. Yet economic output is still 6% below – suggesting the loss of jobs may have further to run.
Outside of these consumer-centric industries, the story looks more benign. Employment is still trending down across the wider private sector on a three-month average of payrolls growth, but only slightly. We’re also not seeing a particularly noticeable pick-up in redundancies across the economy. Vacancy numbers have stopped falling, too.
“Today’s data raises the prospect of the Bank of England resuming cutting interest rates in March. The MPC will be reassured by further evidence of pay pressures easing, and the labour market continuing to soften. The Bank may also want to minimise downside risks to the labour market and lower rates ahead of the next forecast meeting in April.
“Headline pay growth eased in December, falling from 4.4% to 4.2%. The fall in headline pay was partly driven by an easing in public sector wage settlements, which fell for the first time since July 2025. Demand for labour remains weak which has curtailed workers’ bargaining power, meanwhile falling costs for households should also temper pay demand amongst workers. We expect pay growth to fall to 3% by the end of 2026.
“Following a November where hiring plans were put on hold due to the budget, things are yet to get going again, potentially highlighting the longer-term impacts of increases costs that businesses have faced.
Increased minimum wage costs, national insurance contributions, business rates and concerns around the impact of the Employment Rights Act continues to show up in the data and appears to be putting a weight on the economy. Economic indicators were beginning to shine some positivity but that has arguably been wiped by this latest data.
“There are strong signs that the labour market is continuing to loosen as wage growth including bonuses has eased to 4.2% and the rate of unemployment has risen to 5.2%.
“Wage growth is being propped up by the public sector and the number of unemployed people per vacancy now sits at 2.6, the highest in more than 10 years if the pandemic period is excluded.
“While overall employment appears broadly stable and the rise in redundancies has slowed, the pain is not evenly spread. Young people, disabled people and men are bearing the brunt of the rise.
“Youth unemployment is now at 14.0%, the highest rate for five years. This is particularly concerning as the number of 18-24 year olds out of work has jumped by 80,000 on the quarter to 575,000. More young people are actively seeking work, but too many are struggling to secure it.
Continue reading...
