Cooling Jobs Market Fuels Hopes of Rate Cuts

Recent UK labour-market data suggests the job market is losing some of its earlier momentum — a development that is increasingly being linked to possible reductions in borrowing costs and mortgage rates. Rising unemployment, weaker wage growth, and falling payroll numbers have sparked renewed bets on rate cuts from the Bank of England. For many households waiting to refinance or buy a home, that could translate into more affordable mortgage deals soon.

In the third quarter of 2025, official data showed the unemployment rate rising to 5.0%, the highest level in several years. At the same time, regular pay growth slowed to 4.6%, down from earlier readings, and payroll data recorded a drop of 32,000 jobs — the largest such two-month decline in recent memory. These signs point to a notably softer labour market overall.

Wage growth has also weakened, and the slowdown in pay increases reduces pressure on inflation. A cooler inflation outlook gives the Bank of England more latitude to consider lowering its benchmark interest rate — the so-called “Bank Rate” that underpins borrowing costs, including mortgages. As a result, financial markets are beginning to price in rate cuts, which in turn influences how lenders price mortgage deals.

For prospective home-buyers and those looking to remortgage, this could be welcome news. If lenders respond to lower wholesale rates, fixed-rate mortgages may become more affordable. Even modest reductions could meaningfully lower monthly repayments and improve housing affordability, which has been under strain in recent years.

However, the picture remains mixed. While job-market weakness boosts hopes for lower rates, affordability challenges still persist due to high home prices and a broader cost-of-living squeeze. Some borrowers may still struggle to qualify for mortgages, especially if they face income uncertainty or tighter lending standards.

In addition, the timing and pace of any rate cuts remain uncertain. The Bank of England must balance the need to support economic growth with the risk of reigniting inflation. Should inflation remain sticky — or other economic pressures emerge — the case for cutting rates may lose strength.

Finally, even if interest rates drop, the overall demand for mortgages may remain subdued. Recent forecasts suggest mortgage lending growth could slow in 2026, as borrowers remain cautious and real incomes stay squeezed.

For now, the weakening labour market has opened a window of opportunity — but whether it leads to sustained relief in mortgage costs will depend on how inflation, policy decisions and broader economic conditions evolve.

Also Read:  Xiaomi Pad 6 UK Black Friday Deals Up to 45 Percent Off