UK Jobs Market Softens as Wage Growth Slows, Reinforcing Case for BoE Rate Cuts

The United Kingdom’s labour market showed further signs of cooling in November, with unemployment holding at elevated levels while wage growth eased, strengthening expectations that the Bank of England will continue cutting interest rates in the months ahead.

Data released on Tuesday by the Office for National Statistics showed the unemployment rate remained at 5.1% in the three months to November, unchanged from the previous period and marking the highest level since early 2021. The persistence of joblessness at these levels highlights a gradual weakening in labour market conditions as higher borrowing costs and slowing growth weigh on hiring.

The central bank has already warned that unemployment is likely to hover around the 5% mark for the next two years. A recent survey by The Times newspaper suggests the outlook could deteriorate further, with economists forecasting joblessness could rise to between 5% and 5.5% by the end of 2026, which would represent the highest level in more than a decade outside the pandemic period.

Alongside the softening jobs picture, wage pressures also continued to ease. Pay growth across the economy, excluding bonuses, slowed to an annual rate of 4.5% in the three months to November, down from 4.6% in the prior period. While still above pre-pandemic norms, the gradual moderation in earnings growth is viewed by policymakers as a key signal that inflationary pressures are easing.

The Bank of England cut its benchmark interest rate by 25 basis points to 3.75% at its December meeting, extending a series of reductions that began in August 2024 as inflation drifted closer to the 2% target. That decision was narrowly passed, with a 5 to 4 vote and Governor Andrew Bailey switching sides in support of the cut.

With the central bank’s next policy meeting scheduled for early February, officials are expected to remain focused on labour market dynamics. The combination of stubbornly high unemployment and slowing wage growth is likely to keep the door open for further rate cuts in 2026, as policymakers balance the need to support growth against the risk of reigniting inflation.