Britain’s labour market showed fresh signs of strain as unemployment rose to its highest level in more than a decade outside the pandemic, while wage growth

continued to cool — developments that are strengthening expectations of an imminent interest rate cut.

Official figures released on Tuesday showed the jobless rate climbed to 5.2% in the final quarter of 2025, the highest since the three months to October 2015, excluding the brief pandemic spike when unemployment reached 5.3% in late 2020.

The data is closely watched by policymakers at the Bank of England, who are weighing when to begin easing borrowing costs after a long fight against inflation.

Unemployment figures in the UK are drawn from a labour force survey that the Office for National Statistics is currently overhauling. Response rates fell sharply during the pandemic, raising concerns about reliability, though economists say data quality has improved in recent months.

Financial markets reacted quickly. Sterling slipped by more than a third of a cent against the US dollar after the release, reflecting rising confidence that interest rates may soon be cut.

The report also pointed to easing pressure from wages — a key inflation driver. Regular pay growth, excluding bonuses, slowed to 4.2% in the final three months of 2025 compared with a year earlier, in line with forecasts from economists polled by Reuters, and down from 4.4% in the previous period.

The central bank has repeatedly stressed that wage trends, particularly in the private sector, are critical in judging how persistent inflation will be. Earlier this month, policymakers noted that pay growth was beginning to reflect a softer jobs market after an unexpectedly resilient spell.

That cooling trend was reinforced by Tuesday’s data, which showed private-sector wage growth excluding bonuses easing to 3.4%, down from 3.6% in the three months to November.

Investors are now almost fully pricing in two quarter-point rate cuts by the end of the year, as concerns about stubborn inflation give way to fears of economic slowdown and rising unemployment.

The weaker labour market comes on the heels of disappointing economic growth figures. Data published last week showed GDP growth in the final quarter of 2025 fell short of expectations, weighed down in part by uncertainty surrounding potential tax rises linked to finance minister Rachel Reeves’s budget plans unveiled in late November.

Together, the figures paint a picture of an economy losing momentum — and a central bank under growing pressure to act. Photo by Mike Kirby, Wikimedia commons.