Expectations for a Bank of England rate cut in December are seen strengthening after UK jobs data showed clear signs of weakness. The unemployment rate rose to 5% in the three months to September, beating expectations of 4.9%, while layoffs rose to their highest level since 2021.
Market reaction was seen with the UK 2-year bond yield falling 6 basis points to 3.745% as investors raised expectations for a rate cut. The pound weakened 0.2% against the US dollar, while the FTSE 100 rose 0.9%.
Private sector wage growth fell to 4.2% a year, in line with expectations but still showing signs of slowing momentum. HMRC data also hinted at continued weakness in the fourth quarter of next year.
Deutsche Bank economist Sanjay Raja said increasing slack in the labour market and easing wage pressures should encourage the MPC to ease monetary policy.
Governor Bailey had previously said more evidence was needed before cutting rates. This latest data is seen as potentially convincing the BoE that employment weakness is effectively curbing inflation.
