United Kingdom: Stagnation with stabilisation signs – Deutsche Bank

Deutsche Bank’s Chief UK Economist Sanjay Raja notes that while the United Kingdom (UK) economy has exceeded expectations, the labour market remains stagnant, with the jobless rate stuck at 4.9% and payrolled employees falling. Wage growth continues to slow, but stabilisation signals are emerging in vacancies, redundancies, claimant count and labour market flows, leaving the Monetary Policy Committee (MPC) likely sidelined ahead of key inflation data.

Labour data hint at stabilisation

"While the UK economy has outperformed expectations, the labour market remains stagnant."

"On the quantities side of the labour market, the jobless rate stayed flat at 4.9% (against our expectation of a slight drop to 4.8%). HMRC payroll data, though volatile, also showed a 13k drop in monthly payrolled employees. On wage growth, the slowdown in private sector pay continued, with Average Weekly Earnings slowing to 2.8% (3m/YoY)."

"But it’s not all bad news. If you look closer, there may be some tentative signs of stabilisation brewing in the labour market. First, job vacancies – the best proxy for jobs demand – slowed, but only to 707k (from 711k) in the three months to July. To be sure, vacancies have been moving in a very tight range all year – signalling that we may be near the nadir in jobs demand. The vacancy to unemployment ratio – a good gauge of labour market tightness – has also been stable for a few months now at 0.4."

"Second, the number of redundancies over the same period slowed to 106k – its lowest level since July 2025. Third, the claimant count also dropped from 4.4% to 4.3%. "

"Fourth, labour market flows point to some momentum in activity too. The underemployment rate dropped from 8.6% in Q1-26 to 8% in Q2-26. Job churn (i.e. job to job moves) also rose in Q2-26 to 2.4%. And the UK quits rate picked up for the first time since spring last year (0.8%)."

"Put simply, while the labour market may seem stagnant on the surface, there are some signs of stabilisation on the horizon. For the MPC, today’s data won’t do much to move the dial. Weakness in headline indicators should keep the MPC stuck on the sidelines for now as markets turn their focus to tomorrow’s inflation data."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)