12 November 2025: The UK job market continues to deteriorate

Yesterday’s publication of employment data for the three months to September gave a perfect illustration of the difficulties that are being faced by both the Bank of England and the Chancellor.

At its most recent meeting, the Monetary Policy Committee left interest rates unchanged at 4% by the narrowest of margins, with concerns about inflation just about outweighing those about economic growth.

The data released by the Office for National Statistics yesterday would have convinced those who voted for a cut that they were right, despite wage growth remaining above the rate of inflation.

The ONS has reported that employers laid off 22K workers, compared with a net addition of 91K in the three months ending in August. This is the first time the overall labour force has seen a reduction in employees since the three months ending in March 2024.

Additionally, the ILO Unemployment Rate has accelerated to 5%, faster than the 4.9% estimate and the prior reading of 4.8%. This is the highest level seen since March 2021.

Signs of a weakening job market are expected to tip the balance in favour of an interest rate cut by the MPC at its December meeting.

Meanwhile, Average Hourly Earnings Excluding Bonuses, a key measure of wage growth, rose at a moderate pace of 4.6% on an annualised basis, as expected, compared to a 4.7% growth seen in the three months ending August. In the same period, Average Earnings Including Bonuses rose at a slower pace of 4.8%, compared to estimates of 4.9% and the prior reading of 5%.

However, Bank of England policymaker Megan Greene signalled she continues to back keeping interest rates on hold, despite figures showing UK unemployment climbing to its highest rate since the pandemic.

Speaking at a UBS conference in London, Greene said she believed the labour market is past the worst and warned that firms are predicting more hefty wage increases.

The Prime Minister and his Finance Minister are stuck in a catch-22: they cannot afford to scrap the two-child benefit cap, but they also cannot afford not to.

If Rachel Reeves does away with the cap, she will add around £12 billion a year to public expenditure, which will have to be clawed back through tax rises and other spending cuts. But if she decides against such a move, she will again face the wrath of disaffected Labour backbenchers.

Those same backbenchers forced the Cabinet into an embarrassing U-turn in April over welfare cuts. Were Reeves to be forced down a similar path again, voters would be entitled to ask; Who is running the country?

Sterling snapped its four-day winning streak and slumped to 1.3120 against the US Dollar during the European trading session yesterday, closing at 1.3161.

The split in the FOMC, where several members of the Committee are in favour of drastically cutting rates, while an almost equal number remain concerned about reigniting inflation, is in no small part due to the actions, both physical and verbal, of President Trump.

Trump wasted no time in blaming Fed Chair Jerome Powell for the softening in the economy. He has called out Powell on several occasions, calling him Mr Too Late, while taking advantage of several Fed Governors departing from the Central Bank to insert his “own people” into the vacated roles.

His most fervent cheerleader is Stephen Miran, who was appointed to the Federal Reserve Board of Governors as recently as September. Miran has consistently called for monetary policy to be eased, saying just this week that he believes the conditions are right for a 50-point cut at the December meeting.

Meanwhile, a plethora of Regional Fed Presidents still have concerns that are rooted in the fear that inflation could return.

Powell has spoken many times about the fog created by the Federal Government shutdown, which has not yet fully cleared, despite an agreement being reached in Congress.

Fed Members Bostic and Hammack commented on US monetary policy yesterday. However, the tone of the bankers was the opposite: Bostic signals a still restrictive policy, while Hammack thinks the Fed needs to be restrictive at the moment.

Bostic said he continues to see one interest-rate cut as appropriate in 2025 if the labour market remains solid. “For the rest of this year, I still have one cut on my outlook,” Bostic said during an event in Alabama. “That is predicated on the notion that labour markets stay solid.

If they weaken considerably, that balance of risks starts to look different, and the appropriate path will look different as well.”

Speaking separately, Chicago Fed President Austan Goolsbee said the Central Bank’s Autumn meetings will be “live” as he and his colleagues try to interpret mixed economic data and how best to adjust rates in response. He didn’t signal which way he may be leaning.

Miran said on Monday that he advocated further interest rate cuts to stave off a potential economic softening ahead. In a CNBC interview, the Central Bank official stood by his belief that the Fed should be moving at an even more rapid pace than its traditional quarter-percentage-point reductions.

He advocated, as he has at the previous two Federal Open Market Committee meetings, a 50-basis-point reduction, though he said there should be at least a quarter-point easing.

The dollar index lost ground yesterday, falling to a low of 99.28. It did, however, recover to close at 99.48.

The general mood of optimism in the Eurozone at the moment was confirmed by the release of the ZEW index for the region, which rose from 22 in October to 25 this month.

In November, about 62% of the surveyed analysts expected no changes in economic activity, 31.5% predicted improvement, and 6.5% anticipated a deterioration. In the meantime, the indicator of the current economic situation rose by 4.5 points to -27.3, and inflation expectations fell by 4.4 points to -2.7.

Meanwhile, investor confidence in Germany softened slightly in November, signalling continued caution about Europe’s largest economy despite signs of broader regional improvement. The German ZEW Economic Sentiment Index slipped to 38.5 from 39.3, missing expectations of 42.5. The Current Situation Index improved modestly from -80.0 to -78.7.

Tentative signs of a stable recovery will allow for a stable rate policy, the Austrian Central Bank’s new Governor told reporters yesterday. Donald Trump’s trade war has been less damaging for Europe’s economy than widely feared, and there is a hope that a stable recovery is underway, European Central Bank governing council member Marián Kočner said. We have not seen the substantial reduction in growth rates and the inflationary effects of the trade conflicts that were anticipated in March and April.

Kočner, who served as economy minister before joining the central bank in September, nonetheless warned against complacency. “I don’t want to sugarcoat what we are seeing,” he said. “This is the highest level of tariffs since the 1930s, and there will be effects on the world economy.”

The impact on the eurozone will be challenging to predict because we have not experienced anything similar in nearly 100 years, Kočner said, adding that this was the primary reason for the diverging views on the ideal monetary policy path ahead among the ECB’s governing council.

Falling inflation has allowed the ECB to cut its key deposit rate eight times since the middle of last year, bringing it down from a record-high 4% to 2% currently, a level the Bank says no longer restricts the economy.

Confidence in the German economy declined among financial analysts in November, as doubts emerged about whether the government’s planned increase in defence and infrastructure spending would effectively stimulate economic growth. There are several levels of bureaucracy in the German Government that Chancellor Merz will need to break through to achieve substantial and sustainable economic growth.

A strong Eurozone needs a strong Germany to drive it to the next level, according to several economists. The longer the current situation continues, the more likely it is that the entire economy will begin to deteriorate as its “natural” leader continues to flag.

The Euro rallied to a high of 1.1605 yesterday and closed at 1.1583.

Have a great day!