Bank of England ‘firmly on track’ to cut interest rates in March
The chances of a cut to UK interest rates next month have risen, following this morning’s data showing a rise in unemployment and a slowdown in wage growth.
The City money markets now indicate there’s a near-75% chance that the Bank of England lowers interest rates to 3.5% at its next meeting, in March, up from 69% last night.
Investors now fully expect two rate cuts by Christmas, which would bring Bank Rate down to 3.25%.
James Smith, developed markets economist at ING, says today’s UK jobs report keeps the Bank of England “firmly on track” for a March rate cut.
Smith says:
Unemployment is up and hiring surveys are still getting worse. That said, the weakness is still heavily concentrated in consumer-facing industries – a legacy of last year’s sizable payroll tax (National Insurance) and National Living Wage increases. Hospitality payrolled employment may be down almost 3% since the start of 2025, but it is still 2% higher than pre-Covid levels. Yet economic output is still 6% below – suggesting the loss of jobs may have further to run.
Outside of these consumer-centric industries, the story looks more benign. Employment is still trending down across the wider private sector on a three-month average of payrolls growth, but only slightly. We’re also not seeing a particularly noticeable pick-up in redundancies across the economy. Vacancy numbers have stopped falling, too.
Yael Selfin, chief economist at KPMG UK, says the fall in pay growth to 4.2% strengthens the case for a March interest rate cut:
“Today’s data raises the prospect of the Bank of England resuming cutting interest rates in March. The MPC will be reassured by further evidence of pay pressures easing, and the labour market continuing to soften. The Bank may also want to minimise downside risks to the labour market and lower rates ahead of the next forecast meeting in April.
“Headline pay growth eased in December, falling from 4.4% to 4.2%. The fall in headline pay was partly driven by an easing in public sector wage settlements, which fell for the first time since July 2025. Demand for labour remains weak which has curtailed workers’ bargaining power, meanwhile falling costs for households should also temper pay demand amongst workers. We expect pay growth to fall to 3% by the end of 2026.
Key events
Closing post
Time to recap.
City investors are more confident that the Bank of England will cut interest rates next month, after UK unemployment hit a near-five year high and wage growth slowed.
The money market indicate there is a 75% chance that the BoE cuts interest rates to 3.5% at its March meeting, with many economists predicting a cut.
The chances increased after the Office for National Statistics reported that the UK unemployment rate rose to 5.2% in the final quarter of 2025.
Wage growth also slowed, which could calm concerns about inflationary pressures at the BoE. The pound has dropped by a whole cent against the US dollar to $1.3512.
The youth unemployment rate hit 14%, the highest rate in five years – or nearly 11 years excluding the pandemic – prompting calls for government action to help young people into work.
Robert Salter, a director at auditors Blick Rothenberg, has warned that youth unemployment will increase significantly in the coming months, saying:
“The UK has a significant number of young people who are not in employment, education or training (NEETs). Wider problems in the job market are likely to make this worse with millions of school leavers and new graduates scheduled to enter the labour market in the coming months.”
Green Party leader Zack Polanski called for a ‘Covid-style mobilisation’ to tackle the UK’s youth unemployment crisis, saying:
“Young people have been betrayed by a generation of politicians who have ignored their concerns, sidelined their interests, and sold off their futures.
“Far too many young people are stuck – living with their parents because rents are too high, saddled with tens of thousands of pounds of student debt, and unable to get a decent job so they can start their lives.
“We need a mobilisation on the scale of the COVID response to tackle this crisis and get young people’s lives back on track before we see an entire generation lost to long-term unemployment.”
Here’s the full story:
And here’s our analysis:
“Youth unemployment will increase significantly in the coming months”
Youth unemployment will increase significantly in the coming months, audit, tax and business advisory firm Blick Rothenberg has warned.
Blick Rothenberg fear that graduates and school leavers face a bleak job market, and that the UK’s unemployment rate once school and university finishers enter the labour market this summer.
Robert Salter, a director at Blick Rothenberg, says:
“The UK has a significant number of young people who are not in employment, education or training (NEETs). Wider problems in the job market are likely to make this worse with millions of school leavers and new graduates scheduled to enter the labour market in the coming months.”
“Over 15% of all 16 to 24-year-olds are now NEETs. The latest figures from the Office of National Statistics (ONS) show that the job market is becoming increasingly difficult for all job seekers, with unemployment for December 2025 rising to 5.2%, up from a rate of 4.4% when the Government came to power in July 2024.”
“An estimated 900,000 students are expected to graduate from universities and colleges over the next few months, while many more 16–18-year-olds will also be looking for their first jobs at the same time. The ONS statistics paint a bleak picture for their ability to find and retain employment.”
The pound is extending its earlier sell-off.
Sterling is now down a whole cent against the US dollar at $1.3527, amid anticipation of UK interest rate cuts soon.
Wall Street has opened, after yesterday’s Presidents’ Day holiday, and tech shares are under pressure again.
The technology-focused Nasdaq index has dropped by 0.6% in early trading.
Software firm Synopsys (-2.7%) are the top Nasdaq faller, followed by chipmaker Micron (-2.2%%) and storage firm Western Digital (-2%).
The City may be getting carried away by concluding a March interest rate cut is rather likely, suggests Professor Costas Milas of the University of Liverpool’s Management School.
He tells us:
Before we (economists) jump into conclusions about a Bank Rate cut next month, we should consider the latest unemployment rise to 5.2% in a historical context.
I plot below CPI inflation together with my estimate of the unemployment rate gap (unemployment less “equilibrium” or trend unemployment). Although current unemployment exceeds “trend” unemployment by 1.1 percentage point, history reveals a negative correlation of only-0.10 between the two series.
Assuming causation from a cooling labour market to inflation, history suggests a very weak impact from the labour market on UK inflation and therefore a Bank Rate cut is (should be) far from given!
Today’s unemployment figures are “really concerning, particularly for younger people,” warns Mark Rowland, chief executive of the Mental Health Foundation.
Rowland says:
We know that a sizeable number of young people out of work are struggling with their mental health, and that many people find their mental health is a blocker to finding and staying in quality employment. This is despite our research suggesting that poor mental health should not disqualify people from employment, particularly as quality work can be a net positive for people’s mental health, helping build confidence and connections when the conditions and support are right.
“While some may seek to chastise young people for struggling to balance their mental health and working life, a better approach would be to make changes to workplaces, hiring practices, and employment support that help those of us with mental health problems to access work and stay well. This means being paid enough to afford the essentials, having flexibility, and giving young people the tools and confidence to know that work can be positive force on their mental health and part of a fulfilling life.
“We must also resist calls to lower working protections and wages. Poor quality work that is low paid, unpredictable, or in hostile environments can drastically worsen people’s mental health. If we make the workplace a less accessible place for people with mental health problems, we are likely to see a rise rather than a fall in the number of people experiencing poor mental health and having to leave employment.”
UK bond prices are holding onto their earlier gains, pushing down Britain’s cost of borrowing a little.
Kallum Pickering of Berenberg bank has spotted that UK bond yields are falling by more than other countries:
On a day when UK labour market data are weaker than expected, including on wages, notice how UK bond yields are falling by more than elsewhere. Expect this pattern to emerge more strongly over coming months as UK inflation falls back to 2% … #ukeconomy #ukmacro pic.twitter.com/lPjCdkQ7i6
— Kallum Pickering (@KallumPickering) February 17, 2026
Being unemployed in one’s youth can have a pernicious impact on your earning potential years, or even decades, later.
Claire Leigh, Director of Public Affairs at charity Impetus, explains:
“Today’s labour market stats remind us why getting more young people into work must remain a top priority for Government – it’s imperative not only for their futures, but also for the economy at large.
Spending time unemployed under the age of 23 has been linked to lower wages even 20 years later, and we know that these long-term effects are not felt equally.
Our research has shown that the young people furthest from the labour market, including those from disadvantaged backgrounds, with low qualifications, or special educational needs and disabilities, face compounding challenges that can intersect to make them up to three times more likely to be unemployed than average. We urge Government to ensure that these young people – the ones facing the greatest barriers to work – have access to the greatest support.”
UKHospitality: Government must ease pressure to help us hire young people
The UK’s hospitality sector, which has traditionally offered many young people their first job (happy days….), says the rising costs of taking on staff is pushing up youth unemployment.
Allen Simpson, CEO of UKHospitality, blames the increase in national insurance in Labour’s first budget:
“Today’s labour market figures underline the growing strain on the UK jobs market, with unemployment rising to 5.2%, its highest level since early 2021, and payroll employment continuing to fall.
“Sadly, younger workers and entrylevel roles are bearing the brunt of this slowdown, with employment among under-35s down sharply since mid2024.
Hospitality is a vital entry point into work for young people, but rising costs and policy decisions – including changes to employer National Insurance, costing the sector £3.4bn a year – are making it harder for businesses to create, sustain and recruit into these roles. Without urgent action to ease the pressure on employers, we risk locking a generation out of vital opportunities to gain skills, experience and a foothold in the workforce.
“If the Government is serious about growth and tackling youth unemployment, it must urgently ease the pressure on hospitality businesses and stop taxing jobs out of the economy.”
Polanski calls for ‘Covid-style mobilisation’ to tackle youth unemployment crisis
Green Party leader Zack Polanski is calling for a ‘Covid-style mobilisation’ to tackle the UK’s youth unemployment crisis.
Following this morning’s data showing that the unemployment rate among 18-24 year olds has hit 14%, its joint highest level in a decade, Polanski says:
“Young people have been betrayed by a generation of politicians who have ignored their concerns, sidelined their interests, and sold off their futures.
“Far too many young people are stuck – living with their parents because rents are too high, saddled with tens of thousands of pounds of student debt, and unable to get a decent job so they can start their lives.
“We need a mobilisation on the scale of the COVID response to tackle this crisis and get young people’s lives back on track before we see an entire generation lost to long-term unemployment.”
Warner Bros gives Paramount a week to make a better takeover offer
The takeover battle for Warner Bros Discovery has taken another twist.
Warner Bros has announced it has rejected Paramount Skydance’s latest $30-a-share hostile takeover bid, having previously accepted a bid from Netflix instead.
However, Warner Bros is also giving Paramount seven days to see if it can come up with a better deal to buy the owner of HBO Max and the “Harry Potter” franchise, Warner Bros said on Tuesday.
Intriguingly, Warner Bros also claim that “a senior representative” for Paramount had suggested they could pay $31 per share.
Paramount now has until February 23 to submit its “best and final offer,” which Netflix is allowed to match under the terms of the merger agreement, Warner Bros said.
Samuel A. Di Piazza, Jr., Chair of the Warner Bros. Discovery Board of Directors says:
“As announced today, we continue to believe the Netflix merger is in the best interests of WBD shareholders due to the tremendous value it provides, our clear path to achieve regulatory approval and the transaction’s protections for shareholders against downside risk.
With Netflix, we will create a brighter future for the entertainment industry – providing consumers with more choice, creating and protecting jobs and expanding U.S. production capacity while increasing investments to drive the long-term growth of our industry.”
Lisa O’Carroll
Irish exports surged to record levels in 2025 on the back of tariffs threatened by Donald Trump last March.
The 16% rise was largely driven by medical devices and pharmaceuticals made in Ireland by US and European multinationals including Pfizer, maker of Viagra, and Novo Nordisk, maker of Ozempic.
They accounted for more than 50% of all exports in the year.
Preliminary figures issued by the government’s Central Statistics Office, show the country exporters €260bn worth of goods in 2025 with the US the top destination market, followed by the Netherlands and Belgium where key ports Rotterdam and Antwerp/Bruges act as international shipping gateways.
Exports of medical and pharmaceuticals went up 39% to €138.9bn compared with €99.7bn in 2024 representing 53.2% of total exported goods in 2025.
Pharma and medical device companies rushed to export goods to the US in spring after Donald Trump threatened multiple tariffs on drugs made in Ireland.
He accused Ireland of stealing the US pharma industry at a St Patrick’s meeting with the Irish premier Micheál Martin last March.
Charts: How UK pay growth has slowed
As is chart show, UK pay growth has slowed notably in recent months.
Regular pay (ie, excluding bonuses) growth has dropped to 4.2% in October-December 2025, down from 5.9% in the same quarter a year ago.
That has pushed down growth in real wages (ie, earnings after CPIH inflation) to just 0.5% in the final quarter of 2025, down from 2.4% in October-December 2024).
The weakness of the pound this morning helped to push the UK’s stock market towards a new record high.
The FTSE 100 share index rose as high as 10,528 points, up 54 points, only seven points off its all-time peak set last week.
A fall in the value of sterling typically boosts the share prices of multinational companies listed in London, as it makes their overseas earnings more valuable.
Fawad Razaqzada, analyst at City Index, says:
“The FTSE 100 edged higher to close in on last week’s record, as the pound weakened following the release of UK wages and Jobs data that puts a March rate cut firmly on the table, barring any surprises in tomorrow’s inflation report. Unless we see a sharp turnaround in data, I would be expecting another rate cut in June, and possibly more in the summer if inflation risks ease.
This should keep the longer term FTSE 100 forecast firmly supported and keep a lid on sterling.
Lisa O’Carroll
Shein has responded to the EU’s investigation, saying in a statement it took its obligations under the DSA “seriously”.
Shein says it has always cooperated fully with the European Commission and Coimisiún na Meán [the Irish regulator which will lead the investigation] and would “continue to” do so.
It added it had taken steps to limit harms, saying:
“Over the last few months, we have continued to invest significantly in measures to strengthen our compliance with the DSA. These include comprehensive systemic-risk assessments and mitigation frameworks, enhanced protections for younger users, and ongoing work to design our services in ways that promote a safe and trusted user experience.”
Cost of credit card borrowing hits 20-year high
The cost to borrow on a UK credit card has hit its highest level in at least 20 years, data provider MoneyFacts reports.
MoneyFacts data shows that the the average credit card purchase APR [annual percentage rate] hit 35.8% in February, the highest rate since records began in June 2006.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, says:
“The latest statistics from UK Finance reveal around half of credit card holders are now incurring interest charges, and while some might only owe a few hundred pounds, there will be others with significantly more debt that needs to be paid back. Luckily, there are some lengthy interest-free balance transfer cards to choose from, with TSB leading the market with a 38-month term, which charges a transfer fee of 3.49%. Reviewing card statements regularly is vital to stay on top of debts, but it’s also wise to make a calendar note of when any balances will incur interest. Shifting debts around is handy to grab interest-free offers, but the debt will hang overhead if only the minimum repayments are made each month.
“Not every borrower will have the best credit score, which is why it’s wise to check a credit report often before applying for a new card, and sort out any discrepancies. Those who get turned down will need to prioritise paying their debts as quickly as possible. Making fixed credit card payments is the fastest way to clear debts, those using a credit card charging 35.8% APR with a debt of £500 would take an entire year to pay it off based on a fixed repayment of £50, and it would cost £85 in interest. Increasing this payment to £100 per month would clear the debt in six months, and halve the interest charged (£42).
