UK unemployment has increased to 5.2%, marking the strongest rise in joblessness since January 2021 and strengthening calls from analysts for the Bank of England to move toward lower interest rates as early as March. The latest labour market data show the unemployment rate is almost a full percentage point higher than it was a year ago, a shift analysts say reinforces the case for monetary easing given concurrent signs of slowing wage growth.
Commentary from major financial institutions and economic research houses highlights a broadly similar reading of the data: the labour market is softening and that trend is likely to shape Bank of England decisions on policy in the months ahead.
- ING notes that the unemployment rate is on an upward trajectory, with particular pressure concentrated in consumer-facing sectors. The bank points to deteriorating hiring surveys and anticipates that wage growth will fall further, supporting ING's forecast of rate cuts in March and June. ING analysts say the unemployment rate could drift toward 5.5% over the course of this year.
- Deutsche Bank describes the current picture as "worrying," citing data from HMRC that show payrolled employees declined for a fifth month in a row, with January down by 11,000. Deutsche Bank's Chief UK Economist Sanjay Raja also notes redundancies remained elevated at 145,000 in the three months to December. The bank holds to its view that two additional rate reductions are likely this year, probably by summer.
- Capital Economics highlights that firms are still shedding workers even though there are some nascent signs of activity in the wider economy. The firm attributes the lower demand for labour more to recent government policy changes - specifically higher National Insurance contributions and a higher minimum wage - than to other drivers such as AI. Capital Economics projects interest rates will fall from 3.75% to 3.00% this year.
- Bank of America observes that, while unemployment rose, the drop in payrolls was milder than anticipated. January recorded an 11,000 decline in payrolls versus expectations of a 20,000 fall, and December's figure was revised from -43,000 to -6,000. BofA views the report as consistent with a March rate cut but does not see it as evidence for successive immediate reductions.
- Financial Markets Online's Samuel Fuller characterises the labour market as being "in a spiral, not a spurt," adding that employers remain "deeply wary of taking on new staff." Fuller links this caution to stagnation in the UK service sector and to worries about the impending increase in the National Minimum Wage, and expects the Bank of England could cut rates as soon as next month.
Analysts will be watching forthcoming inflation figures closely; those data are seen as potentially giving the Bank of England the final confirmation it needs to commence easing monetary policy. The interaction of softer employment metrics and moderating wage growth is central to the debate over the timing and pace of any future rate cuts.