UK average earnings, including bonuses, rose 4.2% in the three months to December. That was below expectations of 4.6%.
The figures compare pay growth over a three-month period with the same period a year earlier. They show wage growth slowed more than forecasts suggested.
Uk Wage Growth Surprise
UK wage growth for December 2025 came in at 4.2%, well below our 4.6% forecast. This signals the labour market cooled faster than expected at the end of the year. It is also an important sign that wage-driven inflation pressure is easing. The tight labour conditions seen through much of 2025 may finally be loosening.
Together with the latest January inflation report showing CPI at 2.8%, this changes our view of Bank of England policy. The case for an earlier rate cut in Q2 is now much stronger. Markets may start pricing in easier policy more aggressively in the coming weeks.
For SONIA futures traders, this points to further downside in the forward curve as rate expectations fall. In 2023, when markets first sensed inflation had peaked, repricing moved quickly. A similar shift could happen again. Positioning for lower UK rates remains the clearest path.
Market Implications And Trades
In currency options, the outlook for sterling looks weaker. Smaller interest-rate differentials, especially versus the US dollar, are likely to push GBP/USD lower. Consider buying GBP put options to hedge or trade further downside, particularly as recent CFTC data shows speculative long positions are already being reduced.
For UK equity indices, the message is mixed but leans cautious. Lower rates can help equities, but the reason for those cuts—a softer economy and weaker consumer demand—can hurt profits. Be careful with domestically focused stocks. Options on the FTSE 250 may help you position for higher volatility or protect against a slowdown in consumer spending.
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