UK unemployment rose to 5.2% in the three months to December 2025 as the impact of Labour’s economic policies hit the jobs market.

The last quarter of 2025 saw UK economic activity flatline as businesses reacted to the uncertainty around the budget and associated tax increases. We now know this led to slower wage growth and higher unemployment.

“UK unemployment has climbed to 5.2%, its highest level in nearly five years, while private-sector wage growth slowed to 3.4% which is the weakest pace since 2020,” said Lale Akoner, global market analyst at eToro.

“It is clear the UK labour market is cooling and inflation pressures from wages are fading.”

Wage inflation is one of the key indicators cited by the Bank of England as a reason to be cautious around interest rate cuts. Nowthat wage growth is slowing alongside rising unemployment, the BoE will have no excuse not to cut interest rates at the upcoming meeting in March.

“And crucially, from the perspective of the Bank of England and the outlook for inflation, this weakness is continuing to pull down on wage growth,” explained Luke Bartholomew, Deputy Chief Economist, at Abderdeen.

“Private sector pay growth in particular has essentially returned to an inflation-target consistent rate, meaning that as and when inflation falls to 2% later this year it is likely to stay there rather than start increasing again. Of course, the inflation data tomorrow could throw a wrench in the works, but for now it seems there is a clear case for a further rate cut at the Bank’s next meeting in March, and we continue to expect rates to fall to 3% later this year.” 

Interest rate markets are now pricing two interest rate cuts in 2026.

The FTSE 100 was marginally higher on Monday as UK stocks ticked gently higher, with US markets closed for Presidents’ Day and a lack of catalysts to move the needle.

After touching highs around 10,490 in early trading on Monday, the FTSE 100 eased back to 10,470, up 0.2% on the day.

“A strong showing from financials helped to support the FTSE 100 on a quiet day for corporate news,” says Dan Coatsworth, head of markets at AJ Bell.

“NatWest, Barclays and Prudential took the top spots on the FTSE 100 risers’ list. The industrials and real estate sectors were also in demand, while housebuilders were out of fashion amid negative broker comment. Gold was down nearly 1% to trade just above $5,000 per ounce.”

After a torrid week for NatWest, shares showed signs of life as value seekers stepped in, sending the bank to the top of the leaderboard with a 4% gain. NatWest is still 11% lower over the past 10 trading days.

Although Monday was a relatively slow day for blue-chip newsflow, the lull won’t last for long with a raft of updates from large caps slated for the rest of the week.

“It’s another big week for UK investors, led by miners, with Rio Tinto expected to report a strong finish to the year after record production across iron ore, copper and lithium. Cash flow may look lighter thanks to heavy investment, but firmer commodity prices and a clearer path into 2026 should keep the focus on what comes next rather than what’s gone,” explained Matt Britzman, senior equity analyst, Hargreaves Lansdown.

“Anglo American’s results should look more mixed, with better iron ore offset by weaker copper and a sharply reduced dividend putting the outlook under the microscope. Shifting to the defence space, BAE Systems reports with strong momentum, a bulging order book and high hopes that rising global defence spending can keep growth ticking over into 2026.”

BAE Systems was higher on Monday, along with Babcock, as traders positioned for reports that the UK government was planning to boost defence spending earlier than previously thought.

Babcock added 3.7% and BAE Systems rose 2.8%.

Pinewood Technologies shares sank on Monday after Apax Partners confirmed it does not intend to make an offer for the company, citing challenging market conditions.

Apax had reportedly been lining up a 500p-per-share offer for Pinewood. Pinewood shares sank 29% to 307p on Monday after Apax called off the takeover.

Without actually spelling this out in their statement, US private equity group Apax has probably seen the disruption to the wider software industry caused by AI and has gotten cold feet.

As a provider of software and intelligence to the automotive industry, Pinewood’s dashboard approach to data insights could face competition from AI tools that offer similar insights at a lower cost.

Dan Coatsworth, head of markets at AJ Bell, said: “Pinewood is a technology provider to car retailers and manufacturers and has gone big in AI-related services.

“Two years ago, that strategic development would have attracted hoards of investors wanting exposure to all things AI. In 2026, the reverse is true as investors panic about companies being disrupted by the big AI platform providers including Anthropic and OpenAI.”

Nonetheless, the Pinewood board said it remains confident in the group’s long-term prospects, citing its position as an embedded technology provider to automotive retailers and OEMs, with high recurring revenue.

Pinewood.AI highlighted recent strategic progress, including its February 2025 acquisition of Seez, which bolstered its AI and customer engagement capabilities, and full ownership of Pinewood North America.

Separately, a new contract with Lithia is expected to generate approximately $60 million in annual revenue by the end of 2028, strengthening the company’s position in the North American dealer software market.

The Pinewood board reiterated its medium-term FY28 guidance of underlying EBITDA of £58–62 million.

ITM Power shares rose on Monday after the company confirmed receipt of a Notice to Proceed for a 20MW project following the customer’s Final Investment Decision.

Although the update didn’t specifically name a project, it could relate to the MorGen 20MW West Wales Hydrogen project in Milford Haven announced in August last year. ITM will deploy POSEIDON, its 20 MW modular electrolyser platform, at the project.

The NtP formally authorises ITM to begin full project work and sets the official contract start date. The contract will now be added to the company’s contracted order backlog.

ITM expects to provide further project details towards the end of the first quarter of 2026.

“We are proud that we have been entrusted to deliver yet another important industrial-scale project, and we are looking forward to providing more information on the project specifics in due course,” said Dennis Schulz.