The latest UK labor market figures released on 17 February 2026 point to a steadily cooling jobs market, strengthening the case for the Bank of England to resume cutting interest rates as soon as March, according to leading economists at KPMG UK. Yael Selfin, Vice Chair and Chief Economist at KPMG UK, said the data will reassure the Monetary Policy Committee (MPC).
“Pay pressures are easing further and the labor market continues to soften,” she noted.
Policymakers may also wish to head off downside risks to employment by acting before their next detailed forecast in April.
Headline annual pay growth, excluding bonuses, slowed to 4.2% in the three months to December, down from 4.4% the previous period.
The decline was driven in part by the first drop in public-sector wage settlements since July 2025.
Weak demand for staff has reduced workers’ bargaining power, while lower household costs are also dampening wage expectations.
KPMG forecasts that pay growth will moderate further to around 3% by the end of 2026.
At the same time, the unemployment rate edged up slightly to 5.2% in the three months to December.
Although the rate rose steadily throughout 2025, KPMG expects it to stabilize near current levels over the coming year and to average 5.2% across 2026 as a whole.
Encouraging forward-looking indicators suggest the worst of the slowdown may be behind us.
Business surveys point to improving hiring conditions, and job vacancies have remained broadly stable in recent months.
These signs of tentative recovery come after a challenging 2025 marked by subdued labour demand.
Selfin highlighted the dual message in the data: “Demand for labour remains weak, which has curtailed workers’ bargaining power. At the same time, falling costs for households should temper pay demands.”
The combination is helping to bring inflationary pressures under control without triggering a sharp rise in joblessness.
For businesses, the outlook is cautiously positive.
Stabilizing unemployment and flattening vacancies suggest that the period of rapid contraction in hiring may be ending.
Employers who paused recruitment amid uncertainty over tax changes and economic conditions could soon regain confidence to expand their workforces, particularly in sectors where skills shortages persist.
For workers, the picture is mixed.
Slower wage growth will ease the cost-of-living squeeze for many households but may feel disappointing after several years of stronger rises.
The overall stabilization of unemployment should, however, limit the risk of widespread redundancies.
KPMG’s analysis suggests the UK labor market is now said to be entering a phase of relative calm.
With pay pressures continuing to moderate and hiring sentiment beginning to improve, the economy appears better placed to absorb any remaining headwinds.
The anticipated March rate cut, if delivered, would provide additional support by reducing borrowing costs for businesses and households.
Overall, today’s figures reinforce the narrative of a labor market that has cooled sufficiently to allow monetary policy to ease without endangering employment stability. As 2026 unfolds, the key question will be whether these green shoots of recovery translate into sustained hiring and broader economic momentum.