December 2025 UK Jobs Report: Grim Reading

Headline unemployment, in the three months to December, rose to a fresh cycle high at 5.2%, 0.1pp above consensus expectations.

Meanwhile, earnings pressures moderated further, with both regular and overall pay growth rising by 4.2% YoY in the final three months of the year, the former being the slowest pace since Q1 22, though headline pay measures remain at rates inconsistent with the 2% inflation target. Once again, however, there remains a significant divergence between public sector earnings growth, at 7.2% YoY, and private sector pay growth, at 3.4% YoY, with the latter becoming increasingly compatible with a sustainable return to the 2% inflation aim over the medium-term.

Turning to more timely metrics, the report also pointed to PAYE payrolled employment having fallen for the fifth month in a row, with payrolls having declined by a further -11k in January, with 2025's anaemic labour market momentum seemingly continuing into the new year.

Taking a step back, today's data does little to shift expectations that the Bank of England's Monetary Policy Committee will be delivering further easing in the near-term, not least considering the dovish 'triple whammy' delivered at the February confab, where the tightest possible vote split, and explicit guidance nodding towards future cuts, were combined with economic forecasts that see a return to the 2% inflation target this spring, with CPI then remaining at or around that level for the foreseeable future.

While tomorrow's January CPI report will, naturally, be of some degree more importance to the near-term policy outlook, the latest jobs data nonetheless points to further labour market slack emerging, in turn further reducing the risks of inflation persistence. Hence, my base case remains not only that the MPC will deliver a 25bp cut cut at the next meeting in March, but that such a move will be followed by further cuts as the year progresses, taking Bank Rate to a neutral level, around 3%, by the end of summer.