UK Labour Market Data Issues Complicate BoE Rate-Cutting Debate -Fitch
The UK labour market could be weakening more rapidly than official data suggest, and business surveys point to a further rise in the unemployment rate.
This underpins Fitch Ratings’ view that the Bank of England (BOE) will cut the policy rate before year-end, as highlighted in a new report, which highlighted that labour market developments are important for officials in setting monetary policy.
But it is harder for policymakers to interpret signals from the labour market figures about the degree of slack owing to the low reliability of the Office for National Statistics’ Labour Force Survey.
Survey response rates fell sharply in 2020 and are now just 21% – about half the prevailing rate before the Covid-19 pandemic, according to Fitch.
The official Labour Force Survey (LFS) data suggest the slack in the labour market has increased, with labour supply growing faster than labour demand – employment plus vacancies.
The unemployment rate has risen to 4.8% in the three months to August 2025, and the single-month August estimate is at 5.3%. Fitch noted that labour force survey has become less reliable post-Covid-19 pandemic due to a sharp decline in response rates.
Alternative data suggest the slack could be larger and rising faster. While the Labour force survey indicates steady growth in 16+ employment, payroll employee counts have fallen by 119,000 since July 2024.
Fitch says it has constructed an alternative measure of employment, based in large part on the payrolls data, which show total employment declining over the past year.
This could mean the unemployment rate is understated and/or the employment rate (employment as a share of the working-age population) are overstated. These are both important indicators of labour market slack.
Fitch explained that forward-looking indicators such as business surveys point to employment growth stalling over the next 12 months and the unemployment rate rising.
BOE policymakers have expressed concern about sticky wage growth. But private-sector regular wage growth is slowing and the growing slack in the labour market suggests this trend will continue.
Accordingly, we still think the BOE will cut by 25bp before the end of the year. And as the labour market weakens, we anticipate more meaningful deceleration in wage growth, creating scope for further cuts to 3.25% by end-2026. Lafarge Africa Grows Profit by 246%, Retains Positive Outlook
