Labor Market Data Strengthens Case for A December Bank of England Rate Cut, Says Deutsche Bank

07:38 AM EST, 11/11/2025 (MT Newswires) -- Tuesday's United Kingdom labor market data should give the Bank of England's Monetary Policy Committee more confidence to cut Bank Rate further by year-end, said Sanjay Raja, Deutsche Bank's chief U.K. economist.

Labor market slack continued to widen -- even surprising market expectations, noted Raja. Pay momentum continued to slow, as expected. While Budget uncertainty may be hampering hiring plans heading into Q4 2025, one thing is clear: Tuesday's data should continue to strengthen the case for a December rate cut.

The official unemployment rate jumped to 5%. The bank expected a pickup to 4.9% instead -- as did the BoE. There seems to be some catch-up here with the HMRC payroll data, with the three-month/over/three-month employment change surprising to the downside at -22,000 (in the three-month to September).

Redundancies over the same period rose to 134k -- its highest level since January 2021. Another surprise is that the number of payrolled employees dropped again -- this time by 32,000 following a big downward revision to September data. Pulling payrolls down was a combination of weaker hiring in retail as well as in the information and communication sector.

The good news for an MPC concerned about above-target consistent wage growth was the fact that AWE Private Reg Pay slowed to 4.2% (three-month/year-over-year) -- in line with expectations. Sequential pay growth (three-month/over/three-annualized) slowed even further to 2.7%.

This should be very encouraging for the BoE, given some of the lingering concerns around second-round effects, pointed out Raja. Flash HMRC data also point to further weakness to come in Q4 2025 with private-sector median wages slowing again.

Big picture, barring any revisions, Tuesday's data speaks to two things: one, there's more slack building in the labor market -- and perhaps more so than assumed by the MPC in its November projections; and two, pay momentum continues to slow. Both should be encouraging for the MPC.

Indeed, Governor Andrew Bailey talked up the need for a larger accumulation of evidence for the MPC to cut Bank Rate later this year. Tuesday's data should give the majority of the MPC some added confidence that weakness in the labor market is translating into weaker pay momentum, which should ultimately feed through into inflation in the months and quarters to come, according to the Deutsche Bank economist.

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