Closing post
Time to recap.
City investors are more confident that the Bank of England will cut interest rates next month, after UK unemployment hit a near-five year high and wage growth slowed.
The money market indicate there is a 75% chance that the BoE cuts interest rates to 3.5% at its March meeting, with many economists predicting a cut.
The chances increased after the Office for National Statistics reported that the UK unemployment rate rose to 5.2% in the final quarter of 2025.
Wage growth also slowed, which could calm concerns about inflationary pressures at the BoE. The pound has dropped by a whole cent against the US dollar to $1.3512.
The youth unemployment rate hit 14%, the highest rate in five years – or nearly 11 years excluding the pandemic – prompting calls for government action to help young people into work.
Robert Salter, a director at auditors Blick Rothenberg, has warned that youth unemployment will increase significantly in the coming months, saying:
“The UK has a significant number of young people who are not in employment, education or training (NEETs). Wider problems in the job market are likely to make this worse with millions of school leavers and new graduates scheduled to enter the labour market in the coming months.”
Green Party leader Zack Polanski called for a ‘Covid-style mobilisation’ to tackle the UK’s youth unemployment crisis, saying:
“Young people have been betrayed by a generation of politicians who have ignored their concerns, sidelined their interests, and sold off their futures.
“Far too many young people are stuck – living with their parents because rents are too high, saddled with tens of thousands of pounds of student debt, and unable to get a decent job so they can start their lives.
“We need a mobilisation on the scale of the COVID response to tackle this crisis and get young people’s lives back on track before we see an entire generation lost to long-term unemployment.”
Here’s the full story:
And here’s our analysis:
"Youth unemployment will increase significantly in the coming months"
Youth unemployment will increase significantly in the coming months, audit, tax and business advisory firm Blick Rothenberg has warned.
Blick Rothenberg fear that graduates and school leavers face a bleak job market, and that the UK’s unemployment rate once school and university finishers enter the labour market this summer.
Robert Salter, a director at Blick Rothenberg, says:
“The UK has a significant number of young people who are not in employment, education or training (NEETs). Wider problems in the job market are likely to make this worse with millions of school leavers and new graduates scheduled to enter the labour market in the coming months.”
“Over 15% of all 16 to 24-year-olds are now NEETs. The latest figures from the Office of National Statistics (ONS) show that the job market is becoming increasingly difficult for all job seekers, with unemployment for December 2025 rising to 5.2%, up from a rate of 4.4% when the Government came to power in July 2024.”
“An estimated 900,000 students are expected to graduate from universities and colleges over the next few months, while many more 16–18-year-olds will also be looking for their first jobs at the same time. The ONS statistics paint a bleak picture for their ability to find and retain employment.”
The pound is extending its earlier sell-off.
Sterling is now down a whole cent against the US dollar at $1.3527, amid anticipation of UK interest rate cuts soon.
Key event
Wall Street has opened, after yesterday’s Presidents’ Day holiday, and tech shares are under pressure again.
The technology-focused Nasdaq index has dropped by 0.6% in early trading.
Software firm Synopsys (-2.7%) are the top Nasdaq faller, followed by chipmaker Micron (-2.2%%) and storage firm Western Digital (-2%).
The City may be getting carried away by concluding a March interest rate cut is rather likely, suggests Professor Costas Milas of the University of Liverpool’s Management School.
He tells us:
Before we (economists) jump into conclusions about a Bank Rate cut next month, we should consider the latest unemployment rise to 5.2% in a historical context.
I plot below CPI inflation together with my estimate of the unemployment rate gap (unemployment less “equilibrium” or trend unemployment). Although current unemployment exceeds “trend” unemployment by 1.1 percentage point, history reveals a negative correlation of only-0.10 between the two series.
Assuming causation from a cooling labour market to inflation, history suggests a very weak impact from the labour market on UK inflation and therefore a Bank Rate cut is (should be) far from given!
Today’s unemployment figures are “really concerning, particularly for younger people,” warns Mark Rowland, chief executive of the Mental Health Foundation.
Rowland says:
We know that a sizeable number of young people out of work are struggling with their mental health, and that many people find their mental health is a blocker to finding and staying in quality employment. This is despite our research suggesting that poor mental health should not disqualify people from employment, particularly as quality work can be a net positive for people’s mental health, helping build confidence and connections when the conditions and support are right.
“While some may seek to chastise young people for struggling to balance their mental health and working life, a better approach would be to make changes to workplaces, hiring practices, and employment support that help those of us with mental health problems to access work and stay well. This means being paid enough to afford the essentials, having flexibility, and giving young people the tools and confidence to know that work can be positive force on their mental health and part of a fulfilling life.
“We must also resist calls to lower working protections and wages. Poor quality work that is low paid, unpredictable, or in hostile environments can drastically worsen people’s mental health. If we make the workplace a less accessible place for people with mental health problems, we are likely to see a rise rather than a fall in the number of people experiencing poor mental health and having to leave employment.”
UK bond prices are holding onto their earlier gains, pushing down Britain’s cost of borrowing a little.
Kallum Pickering of Berenberg bank has spotted that UK bond yields are falling by more than other countries:
On a day when UK labour market data are weaker than expected, including on wages, notice how UK bond yields are falling by more than elsewhere. Expect this pattern to emerge more strongly over coming months as UK inflation falls back to 2% ... #ukeconomy #ukmacro pic.twitter.com/lPjCdkQ7i6
— Kallum Pickering (@KallumPickering) February 17, 2026
Updated
Being unemployed in one’s youth can have a pernicious impact on your earning potential years, or even decades, later.
Claire Leigh, Director of Public Affairs at charity Impetus, explains:
“Today’s labour market stats remind us why getting more young people into work must remain a top priority for Government - it’s imperative not only for their futures, but also for the economy at large.
Spending time unemployed under the age of 23 has been linked to lower wages even 20 years later, and we know that these long-term effects are not felt equally.
Our research has shown that the young people furthest from the labour market, including those from disadvantaged backgrounds, with low qualifications, or special educational needs and disabilities, face compounding challenges that can intersect to make them up to three times more likely to be unemployed than average. We urge Government to ensure that these young people - the ones facing the greatest barriers to work - have access to the greatest support.”
UKHospitality: Government must ease pressure to help us hire young people
The UK’s hospitality sector, which has traditionally offered many young people their first job (happy days….), says the rising costs of taking on staff is pushing up youth unemployment.
Allen Simpson, CEO of UKHospitality, blames the increase in national insurance in Labour’s first budget:
“Today’s labour market figures underline the growing strain on the UK jobs market, with unemployment rising to 5.2%, its highest level since early 2021, and payroll employment continuing to fall.
“Sadly, younger workers and entrylevel roles are bearing the brunt of this slowdown, with employment among under-35s down sharply since mid2024.
Hospitality is a vital entry point into work for young people, but rising costs and policy decisions – including changes to employer National Insurance, costing the sector £3.4bn a year – are making it harder for businesses to create, sustain and recruit into these roles. Without urgent action to ease the pressure on employers, we risk locking a generation out of vital opportunities to gain skills, experience and a foothold in the workforce.
“If the Government is serious about growth and tackling youth unemployment, it must urgently ease the pressure on hospitality businesses and stop taxing jobs out of the economy.”
Updated
Polanski calls for 'Covid-style mobilisation' to tackle youth unemployment crisis
Green Party leader Zack Polanski is calling for a ‘Covid-style mobilisation’ to tackle the UK’s youth unemployment crisis.
Following this morning’s data showing that the unemployment rate among 18-24 year olds has hit 14%, its joint highest level in a decade, Polanski says:
“Young people have been betrayed by a generation of politicians who have ignored their concerns, sidelined their interests, and sold off their futures.
“Far too many young people are stuck – living with their parents because rents are too high, saddled with tens of thousands of pounds of student debt, and unable to get a decent job so they can start their lives.
“We need a mobilisation on the scale of the COVID response to tackle this crisis and get young people’s lives back on track before we see an entire generation lost to long-term unemployment.”
Warner Bros gives Paramount a week to make a better takeover offer
The takeover battle for Warner Bros Discovery has taken another twist.
Warner Bros has announced it has rejected Paramount Skydance’s latest $30-a-share hostile takeover bid, having previously accepted a bid from Netflix instead.
However, Warner Bros is also giving Paramount seven days to see if it can come up with a better deal to buy the owner of HBO Max and the “Harry Potter” franchise, Warner Bros said on Tuesday.
Intriguingly, Warner Bros also claim that “a senior representative” for Paramount had suggested they could pay $31 per share.
Paramount now has until February 23 to submit its “best and final offer,” which Netflix is allowed to match under the terms of the merger agreement, Warner Bros said.
Samuel A. Di Piazza, Jr., Chair of the Warner Bros. Discovery Board of Directors says:
“As announced today, we continue to believe the Netflix merger is in the best interests of WBD shareholders due to the tremendous value it provides, our clear path to achieve regulatory approval and the transaction’s protections for shareholders against downside risk.
With Netflix, we will create a brighter future for the entertainment industry – providing consumers with more choice, creating and protecting jobs and expanding U.S. production capacity while increasing investments to drive the long-term growth of our industry.”
Irish exports surged to record levels in 2025 on the back of tariffs threatened by Donald Trump last March.
The 16% rise was largely driven by medical devices and pharmaceuticals made in Ireland by US and European multinationals including Pfizer, maker of Viagra, and Novo Nordisk, maker of Ozempic.
They accounted for more than 50% of all exports in the year.
Preliminary figures issued by the government’s Central Statistics Office, show the country exporters €260bn worth of goods in 2025 with the US the top destination market, followed by the Netherlands and Belgium where key ports Rotterdam and Antwerp/Bruges act as international shipping gateways.
Exports of medical and pharmaceuticals went up 39% to €138.9bn compared with €99.7bn in 2024 representing 53.2% of total exported goods in 2025.
Pharma and medical device companies rushed to export goods to the US in spring after Donald Trump threatened multiple tariffs on drugs made in Ireland.
He accused Ireland of stealing the US pharma industry at a St Patrick’s meeting with the Irish premier Micheál Martin last March.
Charts: How UK pay growth has slowed
As is chart show, UK pay growth has slowed notably in recent months.
Regular pay (ie, excluding bonuses) growth has dropped to 4.2% in October-December 2025, down from 5.9% in the same quarter a year ago.
That has pushed down growth in real wages (ie, earnings after CPIH inflation) to just 0.5% in the final quarter of 2025, down from 2.4% in October-December 2024).
The weakness of the pound this morning helped to push the UK’s stock market towards a new record high.
The FTSE 100 share index rose as high as 10,528 points, up 54 points, only seven points off its all-time peak set last week.
A fall in the value of sterling typically boosts the share prices of multinational companies listed in London, as it makes their overseas earnings more valuable.
Fawad Razaqzada, analyst at City Index, says:
“The FTSE 100 edged higher to close in on last week’s record, as the pound weakened following the release of UK wages and Jobs data that puts a March rate cut firmly on the table, barring any surprises in tomorrow’s inflation report. Unless we see a sharp turnaround in data, I would be expecting another rate cut in June, and possibly more in the summer if inflation risks ease.
This should keep the longer term FTSE 100 forecast firmly supported and keep a lid on sterling.
Shein has responded to the EU’s investigation, saying in a statement it took its obligations under the DSA “seriously”.
Shein says it has always cooperated fully with the European Commission and Coimisiún na Meán [the Irish regulator which will lead the investigation] and would “continue to” do so.
It added it had taken steps to limit harms, saying:
“Over the last few months, we have continued to invest significantly in measures to strengthen our compliance with the DSA. These include comprehensive systemic-risk assessments and mitigation frameworks, enhanced protections for younger users, and ongoing work to design our services in ways that promote a safe and trusted user experience.”
Cost of credit card borrowing hits 20-year high
The cost to borrow on a UK credit card has hit its highest level in at least 20 years, data provider MoneyFacts reports.
MoneyFacts data shows that the the average credit card purchase APR [annual percentage rate] hit 35.8% in February, the highest rate since records began in June 2006.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, says:
“The latest statistics from UK Finance reveal around half of credit card holders are now incurring interest charges, and while some might only owe a few hundred pounds, there will be others with significantly more debt that needs to be paid back. Luckily, there are some lengthy interest-free balance transfer cards to choose from, with TSB leading the market with a 38-month term, which charges a transfer fee of 3.49%. Reviewing card statements regularly is vital to stay on top of debts, but it’s also wise to make a calendar note of when any balances will incur interest. Shifting debts around is handy to grab interest-free offers, but the debt will hang overhead if only the minimum repayments are made each month.
“Not every borrower will have the best credit score, which is why it’s wise to check a credit report often before applying for a new card, and sort out any discrepancies. Those who get turned down will need to prioritise paying their debts as quickly as possible. Making fixed credit card payments is the fastest way to clear debts, those using a credit card charging 35.8% APR with a debt of £500 would take an entire year to pay it off based on a fixed repayment of £50, and it would cost £85 in interest. Increasing this payment to £100 per month would clear the debt in six months, and halve the interest charged (£42).
EU to investigate Shein over sale of childlike sex dolls and weapons
Newsflash: The EU is to open a formal investigation into the Chinese retailer Shein over multiple suspected breaches of European laws including the sale of childlike sex dolls and weapons.
The European Commission said on Tuesday it had launched the inquiry after demanding information from the fast-growing company last year.
A senior EU official also pointed to reports of clothes, cosmetics, electronic products that were not compliant with EU law.
The investigation will examine three areas of Shein’s service that have given cause for concern.
Apart from the sale of illegal products, it will also look at the “addictive design of the service Shein is providing”, an EU official said, including bonus points programmes, gamification and rewards “that may lead to a risk of users’ mental well being”.
Smaller Christmas bonuses helped to depress pay growth in the last quarter of 2025, reports Andrew Wishart, senior UK economist at Berenberg bank.
He told clients:
“Employers play Scrooge: As companies no longer need to offer generous compensation to retain staff, they paid smaller Christmas bonuses than a year earlier. As a result, total pay growth slowed from 4.6% yoy in the three months to November to 4.2% 3m yoy in December (consensus 4.6%).
A sharper deceleration in pay growth than inflation cut real pay growth from 1.1% 3m yoy in November to 0.8% 3m yoy in December, its lowest since mid-2023. Alongside an increasing personal tax burden, we expect this to subdue consumer spending growth in the near term.”
And with slack increasing in the labour market, Wishart sees more chance of a cut to UK interest rates next week:
“Soft UK labour market data for December and January increase the chance that the Bank of England (BoE) will cut interest rates on 19 March already instead of waiting until the end of April as we forecast.
The tick up in the unemployment rate from 5.1% to 5.2%, another drop in payroll employment and still-elevated redundancies illustrate that the labour market continues to loosen.
Crucially, this fed through to a slowdown in pay growth - a critical variable for many Monetary Policy Committee (MPC) members looking for reassurance that labour market slack is causing wage inflation to ease.”
The UK’s youth unemployment crisis is worse than during the Covid-19 pandemic.
The jobless rate for 16-24 year olds has risen to 16.1%, over the peak recorded in 2020, and the highest since the end of 2014.
Barry Fletcher, chief executive at Youth Futures Foundation, flags that Britain’s youth jobless rate is now above the European average:
“The Office for National Statistics’ latest labour market data has been released today, showing that unemployment continues to increase at a rapid pace. Around 1 in 7 (14.1%) young people not in full-time education are now unemployed – up from 1 in 10 (10.0%) four years ago, when the UK was emerging from the pandemic. That means an estimated 469,000 16–24-year-olds not in full-time education are out of work and actively looking for a job. Over the past year, unemployment among young people has risen, while economic inactivity — those not in work and not actively looking — has fallen.”
“In the last few days, the OECD has highlighted that Britain’s youth unemployment rate has risen above the European average for the first time since records began in 2000. This not only demonstrates the scale of the issue we face, but that young people continue to bear the brunt of this labour market downturn.”
While we have recently seen much needed Government focus and investment to support more young people into work through employment support and apprenticeship reform, more will be needed to meaningfully tackle the youth employment challenge.
“As our Youth Employment 2025 Outlook reveals, the prize of sustainably addressing the UK’s stubborn employment challenge for our young people and the economy is enormous. If the UK matched the Netherlands’ youth participation rate, approximately 567,000 more young people would be in work or education, boosting the long-term economy by £86 billion.”
Britain’s weakening jobs market means the Bank of England will have to cut interest rates three times this year, predicts Tomasz Wieladek, chief European macro economist at asset management firm T. Rowe Price.
Today’s labour market data broadly confirms the MPC’s [monetary policy committee’s] recent dovish pivot. The unemployment rate rose to 5.2%, relative to expectations of 5.1%, while employment growth in the three months to December was 52k, below expectations of 108k. Payroll employment growth surprised to the upside, but remained in negative territory. All metrics indicate that the labour market continues to shed jobs. Wage growth is weakening and is now within a range consistent with achieving the inflation target.
At its last meeting, the MPC chose to put additional emphasis on labour market data in future monetary policy decisions. The data today show that the labour market is weakening slightly faster than expected. This is a result of both a jobless recovery due to the introduction of AI in the UK’s services-based economy and the fact that monetary policy is likely too tight to deliver the inflation target. The MPC will continue to react to these data developments.
I believe the MPC will cut at least three times this year. Financial markets still have to price this scenario. Sterling could weaken significantly against the US dollar again, and front-end gilts should rally from current levels.
Disappointingly, UK labour productivity deteriorated in the last three months of 2025.
The Office for National Statistics has estimated that output per hour worked in Quarter 4 2025 was 0.5% lower compared with Quarter 4 2024, while output per worker decreased by 0.2% compared with the same period.
The ONS says:
The information and communication industry made the biggest positive contribution to productivity growth, compared with the 2019 average; this was caused by a larger increase in gross value added (GVA) compared with hours worked.
Financial and insurance activities made the biggest negative contribution to productivity growth, compared with the 2019 average; this was caused by a small increase in the number of hours worked, alongside a more significant fall in output.
Company insolvencies rose in January
Another worrying development: the number of English and Welsh companies falling into insolvency rose by 4% in January, getting the new year off to a bad start.
HMRC data shows there were 1,744 registered company insolvencies in England and Wales last month, up from 1,683 in December.
On an annual basis, though, it’s 14% lower than in January 2025 (when there were 2,028 insolvencies).
HMRC reports:
Company insolvencies in January 2026 consisted of 256 compulsory liquidations, 1,323 creditors’ voluntary liquidations (CVLs), 151 administrations and 13 company voluntary arrangements (CVAs). There was one receivership appointment
Youth unemployment at joint 10-year high
The UK’s youth unemployment rate hasn’t been higher in a decade.
The 14% jobless rate recorded in October-December 2025 among the UK’s 18-24 year olds was last seen in July-September 2020, when Covid-19 lockdowns hit demand for workers.
To get a higher rate than 14%, you need to go back to April-June 2015 when it was 14.2%.
Louise Murphy, senior economist at the Resolution Foundation, says the UK’s unemployment problems need urgent attention:
At the end of last year almost one-in-six young people who wanted to work couldn’t find a job. Unemployment risks climbing even further in 2026.
“Many European countries have long grappled with high levels of youth unemployment and their efforts have pulled their rate below that of the UK. Getting youth unemployment down in this country – along with the share of young people who aren’t in education or training either – must be a top priority for 2026.”
Naomi Clayton, chief executive at the Institute for Employment Studies said:
“Unemployment is edging upwards as hiring remains weak. Payrolled employment continues to fall, though at a slower rate, and vacancies appear to have stabilised. Rising unemployment and weak hiring means that there are more people looking for fewer jobs and, outside the pandemic, the unemployment-to-vacancy ratio is the highest in 10 years.
Young people are being hit hardest, with youth unemployment at its highest in a decade. The government needs to work with employers to boost jobs and encourage hiring, while expanding support to help people find work.”
Full story: UK unemployment rate hits five-year high of 5.2% as wage growth cools
Unemployment in the UK has risen to 5.2%, the highest level in nearly five years, while wage growth continues to slow, raising the prospect of another cut to interest rates in the spring.
The Office for National Statistics (ONS) said the rate of unemployment was 5.2% in the three months to the end of December, the highest rate since the quarter to January 2021. This was in line with what economists had been expecting and was up from 5.1% in the three months to November.
Joblessness in the UK has steadily risen since 2022, and businesses have complained that tax rises by Rachel Reeves in her last two budgets have exacerbated this, with rises in national insurance contributions and the minimum wage causing particular issues.
In the three months to December, wages excluding bonuses in Great Britain increased by 4.2%, easing from 4.4% the previous month.
In the private sector, pay rose by 3.4%, the lowest level in five years, while wages in the public sector rose by 7.2%. Once adjusted for inflation, annual pay excluding bonuses rose by just 0.8% in October to December, the lowest rate since August 2023.
The number of people on company payrolls also continued to fall, down 134,000 on a year ago, and by 46,000 over the quarter. On a monthly basis, payrolls fell by 11,000 in January.
UK bond yields drop
UK government borrowing costs are dropping this morning, as the weakening jobs market puts pressure on the Bank of England to cut interest rates.
The yield, or interest rate, on two-year UK gilts has dipped by two basis point (0.02 percentage points) this morning. That’s a small move, reflecting the increased expectations of a rate cut in March.
The yield on benchmark 10-year gilts is down 2 basis points too, to 4.368%. That’s a one-month low, eliminating the rise in borrowing costs during the political furore over Keir Starmer’s future earlier this month.
That will be welcomed by the government, as it indicates that the cost of servicing the national debt has dropped.
Yesterday, Bloomberg reported that chancellor Rachel Reeves is on track to bank an extra £1.5bn in lower borrowing costs at her spring statement in March, compared to her budget last November. That’s because yields on 10-year gilts have fallen 25 basis points over that time.
Updated
Unemployment rises: the political reaction
Work and Pensions Secretary Pat McFadden says the government is taking steps to help young people into work:
“Today’s figures show there are 381,000 more people in work since the start of 2025, but we know there is more to do to get people into jobs.
“Our £1.5 billion drive to tackle youth unemployment is a key priority and this month we announced that we’ll make it easier for young people to find and secure an apprenticeship, which comes on top of our investment to create 50,000 new apprenticeships.”
But Shadow work and pensions secretary Helen Whately blames the government for fuelling the youth unemployment crisis:
“An unprecedented series of monthly unemployment increases is the hallmark of this Labour Government.
“The predictable result of bad decisions and economic incompetence.
“Young people are taking the hardest hit. Entry-level roles are the first to disappear from Labour’s tax hikes. By making hiring more expensive and more risky, Labour have are ensuring school leavers and graduates never even get a foot in the door.”
The U6 unemployment rate (including those who cant find full time work, and want it) nudging 8% of the working age population. First sustained rise outside the pandemic since the GFC. https://t.co/HbDZUb8E5n pic.twitter.com/J3jNXvFAYQ
— Simon French (@Frencheconomics) February 17, 2026
Pound drops
The pound is weakening, as traders anticipate the Bank of England could cut interest rates next month.
Sterling has fallen by two-thirds of a cent against the US dollar, to $1.355, its lowest rate since 6 February.
Kathleen Brooks, research director at XTB, says the pound is the weakest major currency on the foreign exchanges this morning:
The market reaction has been swift. The pound has sunk on this news, GBP/USD is down by 70 points and it has lost the $1.36 handle. It is the weakest currency in the G10 FX space on Tuesday, and the pound is now trailing behind the dollar, and is the weakest currency in the G10 so far this month.
As the UK economy softens, the bias is to the downside for sterling.
Updated
Bank of England 'firmly on track' to cut interest rates in March
The chances of a cut to UK interest rates next month have risen, following this morning’s data showing a rise in unemployment and a slowdown in wage growth.
The City money markets now indicate there’s a near-75% chance that the Bank of England lowers interest rates to 3.5% at its next meeting, in March, up from 69% last night.
Investors now fully expect two rate cuts by Christmas, which would bring Bank Rate down to 3.25%.
James Smith, developed markets economist at ING, says today’s UK jobs report keeps the Bank of England “firmly on track” for a March rate cut.
Smith says:
Unemployment is up and hiring surveys are still getting worse. That said, the weakness is still heavily concentrated in consumer-facing industries – a legacy of last year’s sizable payroll tax (National Insurance) and National Living Wage increases. Hospitality payrolled employment may be down almost 3% since the start of 2025, but it is still 2% higher than pre-Covid levels. Yet economic output is still 6% below – suggesting the loss of jobs may have further to run.
Outside of these consumer-centric industries, the story looks more benign. Employment is still trending down across the wider private sector on a three-month average of payrolls growth, but only slightly. We’re also not seeing a particularly noticeable pick-up in redundancies across the economy. Vacancy numbers have stopped falling, too.
Yael Selfin, chief economist at KPMG UK, says the fall in pay growth to 4.2% strengthens the case for a March interest rate cut:
“Today’s data raises the prospect of the Bank of England resuming cutting interest rates in March. The MPC will be reassured by further evidence of pay pressures easing, and the labour market continuing to soften. The Bank may also want to minimise downside risks to the labour market and lower rates ahead of the next forecast meeting in April.
“Headline pay growth eased in December, falling from 4.4% to 4.2%. The fall in headline pay was partly driven by an easing in public sector wage settlements, which fell for the first time since July 2025. Demand for labour remains weak which has curtailed workers’ bargaining power, meanwhile falling costs for households should also temper pay demand amongst workers. We expect pay growth to fall to 3% by the end of 2026.
What the experts say
Here’s some snap reaction to the rise in UK unemployment:
Jonathan Raymond, investment manager at Quilter Cheviot, says there are signs that the UK labour market is ‘creaking’:
“Following a November where hiring plans were put on hold due to the budget, things are yet to get going again, potentially highlighting the longer-term impacts of increases costs that businesses have faced.
Increased minimum wage costs, national insurance contributions, business rates and concerns around the impact of the Employment Rights Act continues to show up in the data and appears to be putting a weight on the economy. Economic indicators were beginning to shine some positivity but that has arguably been wiped by this latest data.
Patrick Milnes, Head of People and Work Policy at the British Chambers of Commerce, blames those rising employment costs:
“There are strong signs that the labour market is continuing to loosen as wage growth including bonuses has eased to 4.2% and the rate of unemployment has risen to 5.2%.
“Wage growth is being propped up by the public sector and the number of unemployed people per vacancy now sits at 2.6, the highest in more than 10 years if the pandemic period is excluded.
“Last year, businesses were hit hard by the increase in National Insurance contributions, and many are now facing further rises in the National Living Wage alongside higher business rates. Our research shows that labour costs remain the biggest cost pressure for businesses, cited by 72% of businesses.
“Against this background it is unsurprising they are holding off hiring. Especially as the imminent introduction of new Employment Rights legislation adds additional complexity to the picture.
“While the Spring Statement will provide a fuller update on the economic outlook, businesses are clear they want to see concrete action to reduce costs, boost exports and encourage investment.”
Ben Harrison, Director of the Work Foundation at Lancaster University, says today’s figures show a weakening and uneven labour market, with more people looking for work and with young people particularly hit:
“While overall employment appears broadly stable and the rise in redundancies has slowed, the pain is not evenly spread. Young people, disabled people and men are bearing the brunt of the rise.
“Youth unemployment is now at 14.0%, the highest rate for five years. This is particularly concerning as the number of 18-24 year olds out of work has jumped by 80,000 on the quarter to 575,000. More young people are actively seeking work, but too many are struggling to secure it.
“Vacancies remain subdued at 726,000, despite a slight uptick on the quarter. The Government clearly recognises the need to provide more support to help people back into work but many initiatives – such as jobs on wheels and youth guarantees – remain in pilot phases.
“To Get Britain Working, Ministers must prioritise a twin focus on rapidly expanding tailored employment support and ensuring those returning to work are able to access secure, and well-paid jobs across the country.”
Unemployment rate among 18-24 year olds rises to five-year high
Peter Dixon, senior economist at the National Institute of Economic and Social Research, has spotted that the number of young people out of work has risen:
At 14%, the unemployment rate among 18-24 year olds has hit its highest level since July-September 2020, more than five years ago
Dixon says:
Below the surface, there are indications that younger workers in particular are being priced out of the market.
A rise of 33 per cent in the minimum wage over the past two years has pushed up the unemployment rate for 18-24 year olds by more than two percentage points to 14 per cent.
With a further inflation-plus rise in the minimum wage for 18-20 year olds scheduled for April, young workers will continue to struggle to gain a foothold in the labour market in the near-term.”
Updated
The ONS also estimate that firms kept cutting workers in January.
Its early, provisional, estimate of payrolled employees for January 2026 shows a decrease of 11,000 within the month, meaning payrolls were 134,000 lower than a year ago.
The rise in unemployment means competition for vacancies is intensifying.
There were 2.6 unemployed people per vacancy in October to December 2025, up from 2.5 in the previous quarter (July to September 2025) and up from 1.9 in October to December 2024.
Updated
Pay rose faster in the public sector than at private companies in the last quarter of 2025, today’s labour market report shows.
Annual average regular earnings growth was 7.2% for the public sector, more than twice as fast as the 3.4% increase in the private sector, the ONS reports.
That’s quite a difference… but if you dig into the jobs report, you can see that the public sector annual growth rate is affected by some public sector pay rises being paid earlier in 2025 than in 2024.
That causes a base effect, which should phase out over the next few months.
Real wages rise by just 0.8%
UK pay growth was particularly weak in the last quarter of 2025 once you account for inflation.
Today’s labour market data shows that annual real regular pay (ex-bonuses) rose by just 0.8% in October to December 2025 – that’s using the Consumer Prices Index measure of inflation.
Real pay was last lower than 0.8% in June to August 2023, when it was 0.7%, the ONS reports.
Introduction: UK unemployment hits highest since early 2021
Good morning. Unemployment across the UK has hit a near five-year high, and wage growth has slowed.
The latest labour market data, just released this morning, shows that the UK jobless rate rose to 5.2% in the October-December quarter.
That’s up from 5.1% in September-November, and the highest rate since the first quarter of 2021.
The number of workers on company payrolls fell too – down by 130,000 over the year and by 46,000 over the quarter.
This follows many months of complaints from businesses that chancellor Rachel Reeves has pushed up employment costs, through increases in national insurance contributions and the minimum wage.
Earnings growth cooled in the quarter too. Basic pay (excluding bonuses) rose by 4.2% in the October-December quarter, down from 4.4% a month ago.
Total earnings (including bonuses) growth also slowed to 4.2%, down from 4.6% in September to November 2025.
ONS Director of Economic Statistics Liz McKeown said:
“The number of workers on payroll fell further in the final quarter of the year, reflecting weak hiring activity, although it is largely unchanged in the latest month. Over the same period the unemployment rate increased, with data showing that more people who were out of work are now actively looking for a job.
“The number of vacancies has remained broadly stable since the middle of last year. Alongside rising unemployment this means that the number of unemployed people per vacancy has increased, reaching a new post-pandemic high. Meanwhile, redundancies are also showing an upward trend.
“Private sector wage growth continues to slow and is at its lowest rate in five years. Public sector pay growth also slowed in the latest period but remains elevated, still affected by some pay awards being implemented earlier in 2025 than 2024, although this effect has now started to diminish.”
We’ve published the latest labour market figures.
— Office for National Statistics (ONS) (@ONS) February 17, 2026
Commenting on today’s figures, ONS Director of Economic Statistics Liz McKeown said: (quote 1 of 3)
Read the latest Labour market overview ➡️ https://t.co/J9M6lAHkPM pic.twitter.com/2HiqnDt5fl
The agenda
7am GMT: UK labour force data
7am GMT: German inflation report
9.30am GMT: UK productivity data for Q4 2025
10am GMT: ZEW’s eurozone economic sentiment survey
1.30pm GMT: NY Empire State Manufacturing Index
Updated
