Moderation in data, stability in markets
Softening labor trends and steady inflation keep UK markets anchored, pointing to a stable near term outlook despite mixed economic signals.
Labor market figures are expected to show that hiring momentum has cooled. One might say the jobs market has decided to “take a little lie down,” which, frankly, many of us sympathize with as we limp through January. Wage growth is likely to moderate as well, in line with survey evidence that politely insists wage inflation is easing — though slowly, much like a queue inching forward at the post office.
Inflation, of course, never misses an opportunity to make mischief. Headline CPI is forecast to rebound to 3.4% year over year, driven by steady core CPI at 3.2% and small upward nudges from food and tobacco. It’s not dramatic enough for panic, but is just enough to spoil the Bank of England’s mood.
The flash purchasing managers’ index (PMI) for January should edge a touch higher, offering the economic equivalent of a polite “feeling fine, thanks,” while public sector borrowing data arrives to remind everyone that fiscal rectitude remains as elusive as a sunny bank holiday weekend.
Despite a softer tone, appetite for gilts remains remarkably strong—perhaps because, in a world full of uncertainty, gilts are the financial equivalent of a reliable kettle: safe, durable, and unlikely to explode unexpectedly. The slight softness came after an upside GDP surprise, which gave markets a brief moment of excitement before returning to the comfortable default of mild skepticism.
The incoming data reinforces expectations that the Bank of England will continue its cautious strategy—watching inflation closely while keeping rates steady, like a hawk that’s slightly too polite to pounce. Markets still anticipate modest easing later in 2026, though timing remains uncertain, very much in the style of a plumber who promises to arrive “sometime between 9 and 5.”
Strong gilt demand, a firmer inflation profile, and steady survey indicators suggest UK money markets should remain anchored, calm, and notably less dramatic than those across the Atlantic. Short term rates look stable, volatility low, and liquidity healthy. In short: well behaved markets; carry on.