Nomura analysts note that the fall in the United Kingdom (UK) unemployment rate to 4.9% hides underlying labour market weakness. Softer payrolls, vacancies and wage growth, alongside policymakers’ resistance to rate-hike pricing, lead Nomura to expect the Bank of England (BoE) to keep Bank Rate unchanged on 30 April.

Headline strength hides softer undercurrents

"The big surprise in today’s UK labour market data was the fall in the unemployment rate to 4.9% in the three months to February (i.e. prior to the Iran war). However, this positive surprise masks a weaker story as employment growth in the LFS survey actually slowed below our expectations to a quarterly rise of 24k, below our forecast of 60k. The fall in the headline unemployment rate was therefore driven by a rise in the inactivity rate to 21.0% from 20.7% previously."

"Other labour market indicators published this morning were mostly weaker than we expected. Payrolls for March (i.e. after the Iran war started) fell by 11k (we expected no change) and the February rise in payrolls was revised to a 6k fall. Vacancies data also disappointed with a 29k fall on the quarter to the lowest number of vacancies since early 2021."

"On wages, private sector regular pay growth was also a little lower than we expected at 0.1% m-o-m in February. The PAYE measure of wage growth also slowed to 0.1% m-o-m in March, suggesting the official measure is unlikely to pick up again in the next release (though these two measures don’t always have a good correlation)."

"The labour market is a lagging indicator, so even in the data we have for March in this report, we would not expect the impact of the Iran war to show clearly for some time. Yet, it does tell us about the strength of the jobs market prior to the war. The Bank of England was forecasting an unemployment rate of 5.2% for Q1 2026, which would now require a March single-month unemployment rate of around 6.2%. However, the weaker details beneath the headline improvement and recent speeches from policymakers pushing back against market pricing for rate hikes this year mean that we continue to expect the MPC to vote to leave rates unchanged on 30 April."

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