UK interest rate cut expected as unemployment rises and wage pressures ease
The Bank of England could lower interest rates as early as December after new figures showed the job market is weakening and wage growth is slowing, an expert has claimed. Unemployment in the UK increased to 5% in the three months to September, according to the latest data from the Office for National Statistics (ONS). It’s the highest level seen since early 2021 and above analysts’ expectations of 4.9%.
The rise in unemployment comes alongside a slowdown in pay. Regular wages excluding bonuses grew by 4.6% in the third quarter, down from 4.7% the previous month. Total earnings, including bonuses, also dropped to 4.8%, from 5%. Richard Carter, the head of fixed interest research at Quilter Cheviot, said the figures could tip the Bank of England towards cutting rates just in time for Christmas.
He said: “An early Christmas present could come in the form of an interest rate cut from the Bank of England following a rise in unemployment and a softening in wage growth.
“The monetary policy committee had a tight 5-4 split on whether to hold or cut rates at last week’s meeting, with Andrew Bailey’s deciding vote erring on the side of caution.”
The Bank’s next interest rate decision is due on December 18, and markets will be watching closely for signs of a change in direction.
Mr Carter added: “Today’s figures from the Office for National Statistics show wage growth pressures, albeit still relatively high, are slowly easing. Any further signs of easing in the next labour market print could sway a few more on the committee to cut.”
ONS estimates also show the number of payrolled employees fell by 117,000 between September 2024 and September 2025, and by 32,000 on a monthly basis.
Initial figures for October show a further monthly drop of 32,000, although the ONS has warned early estimates may be revised.
The number of job vacancies remains broadly stable at around 723,000 between August and October.
But the ONS warned its unemployment rate should be treated with caution due to recent changes in methodology.
ONS director of economic statistics Liz McKeown said: “Taken together, these figures point to a weakening labour market.”
The upcoming Budget on November 26 could also play a role in hiring decisions, according to Mr Carter.
He said: “With the Chancellor’s budget now just two weeks away, many businesses will have shelved any major hiring plans.
“Having already faced a significant rise in national insurance costs earlier in the year, they will likely be nervous to make any real commitments until they know whether further costs are heading their way.
“The BoE will have time to assess the market’s reaction to the budget, and will receive another labour market print prior to its next interest rate decision.
“While today’s figures make a rate cut appear slightly more nailed on, much could still change in the coming weeks.”
The Bank of England has said it expects the unemployment rate to stay close to 5% for the next few years.