Deutsche Bank’s Chief UK Economist Sanjay Raja reports that the United Kingdom's economy has outperformed expectations, but the labour market remains stagnant, with the jobless rate holding steady at 4.9%, contrary to Deutsche Bank's forecast of a slight drop to 4.8% [1]. HMRC payroll data revealed a 13,000 decrease in monthly payrolled employees, and private sector wage growth continued to slow, with Average Weekly Earnings declining to 2.8% (3m/YoY) [1].
Despite these headline weaknesses, Raja identifies tentative signs of stabilisation within the labour market. Job vacancies, considered a proxy for job demand, decreased slightly to 707,000 in the three months to July from 711,000, but have remained in a tight range throughout the year, suggesting the market may be near its lowest point for job demand [1]. The vacancy to unemployment ratio has also been stable at 0.4 for several months [1]. Redundancies slowed to 106,000, marking their lowest level since July 2025, and the claimant count dropped from 4.4% to 4.3% [1].
Additional positive indicators include a decrease in the underemployment rate from 8.6% in Q1-26 to 8% in Q2-26, an increase in job churn to 2.4% in Q2-26, and a rise in the UK quits rate to 0.8% for the first time since spring last year [1]. These factors point to some momentum in labour market activity, despite the overall stagnation [1].
Raja concludes that while the labour market appears stagnant, the emerging signs of stabilisation are noteworthy. However, these developments are unlikely to prompt immediate action from the Monetary Policy Committee (MPC), which is expected to remain on the sidelines as markets await key inflation data [1].
CONCLUSION
The UK labour market is showing early signs of stabilisation despite ongoing stagnation in headline indicators. The MPC is expected to maintain its current stance, with market attention shifting to upcoming inflation data. Overall, the news suggests cautious optimism but limited immediate market impact.