Report published September 28, 2026

UK: Soft Labour Market Should Limit Extent of BoE Tightening but Unlikely to Stop a November Hike

Goldman Sachs · September 28, 2026

Goldman Sachs expects the UK unemployment rate to rise modestly to a peak of 5.2% in early 2027 as employment intentions stay weak, but the peak drag from past labour cost hikes has passed. This outlook will not prevent the Bank of England MPC from hiking in November, though labor market slack should limit second-round inflation and make market pricing for four rate hikes unlikely to materialize.

Read the full report

Read the remaining 4 pages

View Report Sign in

Finvaulta summarizes Goldman Sachs's analysis. Attribute opinions, forecasts, time-sensitive values, and chronology to the issuer and report date; do not treat this page as an independent verification or a current market-data source.

Key Takeaways

1.The UK labour market exhibits some cyclical slack, but spare capacity is limited as recruitment surveys show near-balance and wage models point to modest spare capacity.
2.While the pace of labour market loosening has slowed meaningfully, it is too early to call a stabilisation because employment growth remains below the breakeven pace.
3.The UK unemployment rate is projected to rise modestly to peak at 5.2% in early 2027 (revised down from 5.4%), driven by weak employment intentions and below-trend activity.

How Loose is the Labour Market?
Is the Labour Market Still Weakening?
How Will the Data Evolve from Here?
Leading Indicators
Demand
Labour Costs
The Impact of AI
Unemployment Rate Likely to Rise Modestly from Here

Report data

Exhibit 15: We Expect a Modest Further Rise in the Unemployment Rate from Here

Metric	Estimate	Context
Projected Peak UK Unemployment Rate	5.2%	Forecasted peak in UK unemployment rate, revised lower from 5.4%.
Near-term Forecast UK Unemployment Rate for August	5.0%	Model expectation for August unemployment data released in October.
Increase in Labour Costs from Employer National Insurance Hike	1.5%	Employer National Insurance hike increased UK labour costs by 1.5-2%.
Firms Planning Headcount Reductions due to NICs Hike	53.0%	DMP survey results regarding planned headcount response to employer payroll tax increases.
Cumulative Employment Impact of AI	0.1%	DMP survey data suggesting a modest cumulative impact of AI on employment so far.

Source: Goldman Sachs Global Investment Research; Decision Maker Panel (DMP), Bank of England; Decision Maker Panel (DMP). This is a dated model snapshot, not a live forecast.