KPMG UK comments on today's labour market data

“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.

"Unemployment increased slightly to 5.2% in the three months to December. While there was a steady rise in the unemployment rate in 2025, we expect unemployment to stabilise around the current level over the coming year. Forward looking survey data points to hiring conditions beginning to improve, while vacancies have broadly been flat over the past few months. Overall, we expect the unemployment rate to average 5.2% in 2026.”