KPMG UK has recently shared key insights on the latest labour market data along with other commentary on recent developments. Persistent inflation, growing unemployment concerns, along with more general economic uncertainty remain potentially significant factors that could have a considerable impact on the United Kingdom‘s economy heading into 2026.
KPMG UK commented on the newly released labour market data and its potential impact / implications. Yael Selfin, the Chief Economist at KPMG UK has shared that a weakening labour market now seemingly “paves the way for an interest rate cut.”
She added that today’s data bolsters the case “for an interest rate cut this week with the MPC indicating that it would depend on wage pressures continuing to moderate.”
Selfin further noted that the latest evidence from the labour market should be sufficient “to justify a rate cut later this week.”
They added:
“The unemployment rate edged up to 5.1% in the three months to October with younger workers bearing the brunt of the slowdown in labour market activity as youth unemployment increased to 16%. The prospects for a rebound in hiring activity for younger workers remain weak, particularly with the National Living Wage set to rise by 8.5% from April 2026 for 18–21-year-olds.”
Selfin also mentioned:
“Wage growth slowed to 4.4% in October, while public sector pay growth remains elevated at 8.5%, following an easing in the downward momentum on wage pressures. Meanwhile, private sector pay growth fell to 3.5%, reflecting a marked slowdown in hiring activity amongst businesses which is expected to remain muted in the near term given the weak state of the economy.”
This past week, KPMG UK has also commented on the Bank of England rate decision. Selfin said that the Bank of England delivered its fourth rate cut of the year, but “pace of cuts set to slow in 2026.”
Yael Selfin of KPMG further stated that the Bank opted “to cut interest rates in its final meeting of 2025 in another close vote.”
They further noted that while the decision was “widely expected by financial markets, the vote required the Governor to break the tie once more, this time in favour of a rate cut.”
Selfin continued:
“Recent data has strengthened the case for lowering interest rates. The labour market has weakened further, while underlying inflation has also continued to ease. Although there was no immediate fiscal tightening in the Budget, the Bank judged that the net impact of the measures is likely to push down headline inflation next year. Taken together, this was enough to justify the Governor switching his vote and siding with the more dovish camp of the MPC.”
They also shared:
“In 2026, the pace of cuts is expected to slow as interest rates approach the Bank’s estimate of the neutral rate. The MPC has signaled that the scope for further cuts is narrowing, describing policy as becoming less restrictive. Additionally, there is significant division within the MPC regarding the balance of risks to the inflation outlook, which will make it more difficult to build consensus for further rate cuts next year. As a result, we expect only two interest rate cuts in 2026, taking rates down to 3.25%.”
They further noted:
“The measures announced in the Budget, including the energy bills package, are expected to result in household energy bills falling by around 5% from April 2026 onwards. The Chancellor also avoided announcing significant tax hikes on businesses, reducing the scope for adverse second-round inflationary effects.”
Selfin added that headline inflation dropped to “3.2% in November, led by weaker food and beverage prices.”
They concluded that inflation is expected “to continue falling gradually, with both food and energy prices expected to ease further.”