Nomura analysts highlight that the United Kingdom's unemployment rate dropped to 4.9% in the three months to February, a figure that initially appears positive but conceals underlying labour market weakness [1]. Employment growth, as measured by the LFS survey, slowed to a quarterly rise of 24,000, which is significantly below Nomura's forecast of 60,000 [1]. The decrease in the headline unemployment rate was primarily driven by an increase in the inactivity rate, rising to 21.0% from 20.7% previously [1].
Other labour market indicators released were weaker than expected. Payrolls for March fell by 11,000, contrary to expectations of no change, and the February payrolls figure was revised to a 6,000 fall [1]. Vacancies also declined by 29,000 on the quarter, reaching the lowest level since early 2021 [1]. Wage growth was subdued, with private sector regular pay growth at just 0.1% month-on-month in February, and the PAYE wage measure also slowing to 0.1% month-on-month in March [1].
Nomura notes that the labour market is a lagging indicator, and the data available for March does not yet reflect the impact of the Iran war. However, the figures provide insight into the jobs market's strength prior to the conflict [1]. The Bank of England had forecast an unemployment rate of 5.2% for Q1 2026, which would now require a March single-month unemployment rate of around 6.2% [1]. Despite the headline improvement, weaker underlying details and recent speeches from policymakers resisting rate-hike pricing lead Nomura to expect the Monetary Policy Committee (MPC) to keep the Bank Rate unchanged at its meeting on 30 April [1].
CONCLUSION
While the headline UK unemployment rate suggests improvement, weaker payroll, vacancy, and wage data point to underlying softness in the labour market. Nomura expects the Bank of England to maintain its current policy stance, with no rate changes anticipated at the upcoming meeting. Market sentiment remains cautious, reflecting the mixed signals from the latest labour data.