27 February 2026
Latest economic data from NIESR – wages, inflation and interest rates
The National Institute of Economic and Social Research (NIESR) has published its analysis of the latest economic data showing slowing inflation and real terms wage growth, despite a cooling labour market.
The monthly wage tracker shows wage inflation slowing to 4.2% in the three months to December 2025, down from 4.6%. This was primarily driven by falls in the service sector and shows that wage pressures on employers are easing. It also reflects an easing employment market, with unemployment edging up to 5.2% while employment remains flat. NIESR forecasts wage inflation will drop towards 3.5% in the following quarter.
NIESR’s inflation tracker shows similar reductions in the overall inflation rate, down to 3.0% in January, down from 3.4% in December. With inflation continuing to run below wage inflation, real terms earnings are growing – albeit at fairly low levels. NIESR forecast that inflation will reach the Bank of England’s target of 2% in the first half of the year. Their expectation is that the lower inflation levels are likely to lead to a cut in interest rates.
The implications are that wage inflation is less of a driver for business costs, which may help return employment to growth. In the meantime, the average worker is experiencing real-terms income growth, albeit low, and costs will fall for many people as interest rates continue down.
The monthly wage tracker shows wage inflation slowing to 4.2% in the three months to December 2025, down from 4.6%. This was primarily driven by falls in the service sector and shows that wage pressures on employers are easing. It also reflects an easing employment market, with unemployment edging up to 5.2% while employment remains flat. NIESR forecasts wage inflation will drop towards 3.5% in the following quarter.
NIESR’s inflation tracker shows similar reductions in the overall inflation rate, down to 3.0% in January, down from 3.4% in December. With inflation continuing to run below wage inflation, real terms earnings are growing – albeit at fairly low levels. NIESR forecast that inflation will reach the Bank of England’s target of 2% in the first half of the year. Their expectation is that the lower inflation levels are likely to lead to a cut in interest rates.
The implications are that wage inflation is less of a driver for business costs, which may help return employment to growth. In the meantime, the average worker is experiencing real-terms income growth, albeit low, and costs will fall for many people as interest rates continue down.
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