Bleak UK jobs market underlines UK economic weakness – Charles Stanley on UK unemployment figures
Rob Morgan, chief investment analyst at Charles Stanley, Part of Raymond James Wealth Management said: It’s hard to find a silver lining in the latest UK labour market figures. Unemployment has climbed to 5.2%, its highest since the pandemic era, while total employment has slipped back into decline.
What’s more, the busier Christmas period may have masked deeper cracks, with many firms, particularly in hospitality, warning that the new year has brought an even sharper slowdown.
Wage growth is also losing momentum. Strip out the public sector and adjacent areas, and pay gains are fading rapidly, now firmly aligned with a cooling economy.
What it means for the economy
The jobs market is sending a clear message: employers are nervous, and the broader economy is losing steam after a respectable first half of 2025. Rising taxes and an expanding regulatory load are giving businesses pause for thought, making them more cautious about hiring or replacing staff.
The UK’s underlying economic story is one of struggle rather than resilience. GDP may have grown 1.3% in 2025, but momentum fizzled out in the second half. The services component, the engine of UK growth, has now stalled, while construction and business investment remain notably weak.
What it means for interest rates
With inflation easing, growth at a crawl, and slack building in the labour market, more rate cuts this year look increasingly likely. Another reduction as soon as the March meeting appears firmly on the table – assuming tomorrow’s inflation print delivers a further expected cooling.
And with the UK’s fiscal position constraining the government’s room for manoeuvre, and markets already twitchy about additional debt issuance, the case for the Bank of England to do more of the heavy lifting grows stronger. Even if some inflationary pressures linger, monetary policy may once again become the UK’s main economic shock absorber.