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Britain’s jobless rate rose to its highest in over a decade outside the pandemic period and wage growth slowed again, data showed on Tuesday, bolstering investor bets on a UK interest rate cut next month.
The unemployment rate edged up to 5.2% in the last three months of 2025, the highest since 2015 excluding the pandemic period when it peaked at 5.3%.
It was higher than a rate of 5.1% in the three months to November, the Office for National Statistics said.
The jobless rate is calculated from a survey that the ONS is in the process of overhauling after response rates dipped too low during the pandemic. However, analysts say the quality of the data has improved in recent months.
Employers said the figures showed the impact on the jobs market from policy changes by Prime Minister Keir Starmer’s government including last year’s tax hike for employers.
Sterling fell by more than half a cent against the dollar before recovering some of those losses. Investors priced a roughly 80% chance of a quarter-point rate cut by the Bank of England in March, up from 65% on Monday.
“The latest UK jobs report keeps the Bank of England firmly on track for a March rate cut,” James Smith, an economist at bank ING, said.
Wage Growth Cools to 4.2% in Fourth Quarter
The BoE wants to be sure that inflationary heat from the jobs market is cooling and Tuesday’s data offered it some reassurance.
Annual wage growth, excluding bonuses, slowed to 4.2% in the last three months of 2025 compared with a year earlier, matching forecasts by most economists in a Reuters poll and down from 4.4% in the three months to November.
Private sector annual wage growth excluding bonuses – watched closely by the BoE – slowed to 3.4% in the three months to December, down from 3.6% in the three months to November.
Britain’s jobs market has weakened since finance minister Rachel Reeves increased a tax paid by employers last April.
Businesses are also worried about the latest increase in the minimum wage due to be effective from April and the cost of a reform to give more protections to workers.
A survey published on Monday showed more than one in three employers planned to cut hiring of permanent staff due to costs linked to the legislation.
“The business community has consistently highlighted the negative impact which these reforms will have on hiring, but the government has so far not shown that it is committed to addressing the majority of employers’ concerns,” Alex Hall-Chen, a policy advisor at the Institute of Directors, an employers group, said.
Payroll Costs, Growth Uncertainty Dog Employers
Analysts pointed to a rise in youth unemployment, possibly a reflection of employers’ worries about the cost of hiring.
“Employers are navigating a difficult environment – higher payroll costs, fragile business confidence and persistent uncertainty around growth – and they’re responding by pulling back on junior hiring,” Jack Kennedy, senior economist at jobs website Indeed, said.
However, there were some indications in Tuesday’s data release that the labour market might be stabilising.
In December, payrolled employment fell by a revised 6,000, the smallest drop since August and far milder than the initial estimate of a 43,000 drop.
A provisional figure for January showed a fall of 11,000.
The ONS said vacant positions that employers were seeking to fill were little changed.
(Writing by William SchombergEditing by Suban Abdulla, Susan Fenton and Bernadette Baum)
