Recent figures from the Office for National Statistics show that the UK labor market entered 2026 on a softer footing.
The number of employees on payrolls stood at approximately 30.3 million in January, marking a decline compared with the same month a year earlier. The annual drop pointed to a more cautious hiring environment, as businesses respond to slower economic momentum and rising uncertainty across key industries.
Month-to-month changes were limited, pointing to moderation rather than disruption. The labor market appears to be settling into a steadier but slower phase following the strong rebound that followed the pandemic period. Companies are adjusting to higher operating costs, softer growth expectations and tighter financial conditions, prompting a more selective approach to recruitment.
Despite cooling employment growth, pay continues to move higher. Median monthly earnings rose to £2,588, reflecting a solid annual increase. This resilience in wages suggests that labor supply remains constrained enough to preserve worker bargaining power, even as hiring activity eases. That said, pay dynamics differ across sectors, underlining uneven performance within the broader economy.
Industry data highlights diverging trends. Health and social care employment continued to expand, supported by structural demographic demand. By contrast, retail and wholesale sectors recorded notable job losses, reflecting weaker consumer spending patterns and longer-term shifts in shopping behaviour. The divergence illustrates how different parts of the economy are adjusting at varying speeds.
Taken together, the data points to a labor market that is becoming more balanced yet remains delicate. Rising wages offer support to household incomes, while declining payroll growth reflects softer business confidence. For the Bank of England, these signals carry weight. Labor market conditions remain central to future interest rate decisions and the broader economic trajectory in 2026.
Markets traded with a mixed tone as currencies and metals reacted to central bank signals and fresh data. The euro held firm near $1.185, supported by the ECB’s comfort with currency strength and confidence that inflation is on track, alongside expectations of a less dovish policy mix later this year.
Global markets opened cautiously in thin trading, with the euro holding near $1.185 after the ECB signaled comfort with its strength, sterling steady around $1.36 ahead of key UK data, and the yen firming toward 153 on BoJ rate-hike speculation.
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