Britain’s jobless rate rose to 5.2% in the final quarter of 2025, topping levels last seen in 2015 and marking the highest unemployment rate in years outside the pandemic, official data showed Tuesday. This rise comes as wage growth also slowed, prompting markets to bet more heavily on imminent interest rate cuts by the Bank of England.
Investors now see a high chance of a rate reduction as soon as the Bank’s next meeting in March, while sterling weakened in response to the softer jobs figures.
Why Unemployment Is Rising
Labour market data show unemployment climbed to 5.2% in the three months to December 2025. The increase reflects weaker hiring and a continued decline in payroll employment, analysts said.
Meanwhile, wage growth cooled further. Annual pay growth, excluding bonuses, slowed to around 4.2%, while private-sector wages rose more modestly. This easing of wage pressure can ease inflationary risks but also signals slower demand for labour.
Economists noted that policy changes linked to higher employer costs have also weighed on hiring decisions, contributing to the slowdown in the jobs market.
Impact on Rate Expectations
Falling jobs growth and slower wage gains have strengthened expectations that the Bank of England will begin cutting interest rates soon. Money markets now price a high probability of a quarter-point reduction at the Bank’s March meeting.
Analysts said softer labour data ease concerns about inflation remaining too strong. As a result, investors see interest rate cuts as a tool to support the economy amid weakening conditions.
Sterling and Markets
The British pound eased against major currencies following the jobs report, reflecting increased expectations for rate cuts. Equities also reacted, with some indices climbing as softer data bolstered hopes of cheaper borrowing costs ahead.
Market watchers noted that rate expectations influence currency values, bond yields and investment flows, all of which reacted to the latest data.
What Happens Next?
The Bank of England will review the full set of economic indicators, including inflation and jobs data, at its next policy meeting. Officials have signalled a cautious approach but data showing weakening labour market conditions may tilt the balance toward easing.
Investors and businesses will watch for the Bank’s statements closely, as future rate moves could affect borrowing costs, mortgages and broader economic activity.
Conclusion
The UK jobless rate climbed to a multi-year high, even as wage growth slowed. This combination has increased bets that the Bank of England will cut interest rates in the coming months to support the economy.
For the latest updates on this developing story, stay tuned to Faiz.tv.
