The UK labour market lost further momentum into autumn, with unemployment rising and wage pressures easing—an evolving mix that could give the Bank of England room to lower rates at its final meeting of the year.

The jobless rate climbed to 5.0% in the three months to September (vs 4.8% prior), exceeding expectations. Regular pay (ex-bonuses) slowed to +4.6% y/y from +4.7%, extending a gradual downshift that the BoE has sought as evidence that domestic inflation pressures are abating. Headline CPI printed 3.8% y/y in September—still nearly double the 2% target, but on a clear disinflationary path.

Forward indications point to further cooling. A weekend survey from the CIPD showed employers plan median pay awards of 3% over the next 12 months, with hiring intentions near post-pandemic lows and especially weak in the public sector. Political signals may reinforce caution: Chancellor Rachel Reeves warned of a “difficult” Nov. 26 budget and left the door open to breaking pledges not to raise major taxes, noting that holding the line would imply deep cuts to capital spending.

Policy implications

At last week’s meeting, the BoE held Bank Rate in a close call, with 4 of 9 MPC members voting for a 25 bp cut to 3.75%. Today’s data tilt the balance further toward easing in December: higher slack, softer wage growth, and subdued hiring intentions all argue for pre-emptive support as real activity slows.

Market take

• Rates: Gilts may find support on increased odds of a near-term cut; front-end yields face downside risks if wage surveys continue to drift lower.
• FX: For GBP, a dovish repricing is a headwind, though any fiscal tightening hints in the budget could partially offset via reduced term premia.
• Equities: Domestic cyclicals—housebuilders, consumer discretionary—stand to benefit from lower mortgage and financing costs if policy eases.

Bottom line: A softer labour market and stabilizing wage growth strengthen the case for a December rate cut. Barring an upside surprise in inflation or wages before the Nov. 26 budget, the BoE’s reaction function is pivoting from “wait and see” to “lean toward support.”