UK hiring weakens again as wage growth stays firm, complicating BoE outlook

The UK labor market showed signs of cooling at the end of 2025, with employers remaining cautious amid rising costs and an uncertain economic outlook. A recent survey indicated that hiring activity weakened for the 39th consecutive month, marking the steepest downturn in four months. The payroll tax increase from the 2024 budget is seen as a significant constraint on recruitment, leading firms to rely more on temporary staff for flexibility. Despite this slowdown, starting salaries are rising at their fastest rate since May due to competition for skilled workers. However, wage growth remains below long-term averages, indicating some easing from earlier inflation peaks. The report shows a slight increase in candidate availability alongside falling vacancies, suggesting a loosening labor market. The Bank of England (BoE) cut interest rates to 3.75% in December, but the mixed signals of ongoing wage pressures and weak hiring create a complex policy environment. Markets expect further quarter-point cuts in 2026 as the BoE navigates these conflicting indicators of labor market conditions.