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UK wage growth slowed at the end of 2025 as the jobless rate increased to 5.2 per cent, raising the prospects of a near-term reduction in the Bank of England’s key rate as officials respond to a cooling labour market.

The unemployment rate hit 5.2 per cent, its highest level in five years, compared with 5.1 per cent over the previous three-month period, according to the Office for National Statistics on Tuesday.

Annual growth in average weekly wages, excluding bonuses, slowed to 4.2 per cent in the three months to December, according to the ONS, down from a revised 4.4 per cent in the three months to November. Private sector wage growth eased to 3.4 per cent.

Data based on tax records showed the number of payrolled employees in the UK fell by 6,000 between November and December, leaving employment down by 121,000, or 0.4 per cent, over the past year.

Provisional figures for January showed a month-on-month decline of 11,000, although those figures will probably be revised.

The BoE is watching the slowdown in the UK jobs market closely as it gauges when next to lower its interest rates. Some investors are banking on a quarter-point rate reduction to 3.5 per cent as soon as the BoE’s March meeting as wage growth softens alongside falling inflation.

The pound weakened as traders anticipated a rising probability of rate cuts. It was down 0.5 per cent against the dollar at $1.356.

“With unemployment ticking up and payrolls declining again, this is yet another soft labour market report,” said Luke Bartholomew, deputy chief economist, at Aberdeen, the asset manager.

“For now it seems there is a clear case for a further rate cut at the Bank’s next meeting in March, and we continue to expect rates to fall to 3 per cent later this year.”

James Smith, developed markets economist at ING, added that the data “keeps the Bank of England firmly on track for a March rate cut”.

Additional reporting by Ian Smith in London