U.K. Jobless Rate Rises to Near Five-Year High — Update

By Ed Frankl

Unemployment in the U.K. rose to the highest level in nearly five years in the final quarter of last year, with wage growth also slowing, providing a further incentive for the Bank of England to cut its key rate next month.

The jobless rate was 5.2% in the three months through December, up from 5.1% in the three months through November, Britain's Office for National Statistics said Tuesday, the highest rate since January 2021. Annual wage growth, stripping out bonuses, was 4.2% in the quarter, down from a rise of 4.4% in September-November.

The data paint a picture of a cooling labor market in the U.K., which will likely help BOE policymakers feel more confident that they can cut interest rates. Lower wage growth eases cost pressures for businesses, which feeds into slower price rises across the economy, particularly in the labor-intensive services sector that dominates the British economy.

Unemployment has crept up from 4.4% a year ago, and a multidecade low of 3.6% in the summer of 2022. Wage growth was last lower in the three months through January 2022, the ONS said.

An early estimate of payrolled employees for January fell on month by 11,000, after 6,000 in December, the ONS said. Economists polled by The Wall Street Journal expected adjusted wage growth at 4.2% and the jobless rate at 5.1%.

The pound fell slightly against the dollar and euro after the jobs data.

At its most recent meeting earlier in February, the BOE raised its forecast for peak unemployment in mid-2026 to 5.3% from 5.1% it expected in November.

It also said it expects 3.25% as the pace of wage rises consistent with meeting its 2% inflation target over the medium term. A survey of businesses by the central bank's agents found the increase in pay settlements is expected to average 3.4% this year.

Policymakers expect the pace of price rises to fall to around 2% from April, with data due to be published Wednesday likely to record a drop in inflation in January. Most investors expect the BOE to cut its benchmark rate in March, after it stood pat in a close vote this month.

Policymakers will be reassured by further evidence of pay pressures easing, and the labor market continuing to soften, Yael Selfin, chief economist at KPMG U.K., said in a note to clients.

"The bank may also want to minimize downside risks to the labor market and lower rates ahead of the next forecast meeting in April," she said.

Write to Ed Frankl at edward.frankl@wsj.com

(END) Dow Jones Newswires

February 17, 2026 02:49 ET (07:49 GMT)