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UK labour market continues to loosen

The UK unemployment rate rose to 4.7% in May, marking the highest level since July 2021. Following increases in National Insurance and minimum wage, payroll employment has fallen in 7 of the past 8 months, a clear indication that businesses are managing cost pressures by reducing headcount. With wage growth also showing signs of cooling, money markets are now pricing in an 87% chance of a rate cut in August, reflecting growing confidence that weakening labour market conditions will give the BoE room to begin easing policy.

Long gilts make up over a quarter of the BoE鈥檚 bond portfolio

In light of recent instability in the UK bond market, the Bank of England may retain over 25% of its gilt holdings, particularly those with maturities beyond 20 years. Economists anticipate a slowdown in the sale of £163 billion in long-dated gilts, as the BOE navigates increased market volatility. The shift reflects a changing investor landscape, with traditional long-term buyers like pension funds giving way to more reactive participants such as hedge funds and foreign investors.

Signs of recovery in cross border flows for core sectors

While early H1 data for cross border capital flows into UK Commercial Real Estate is currently (9%) lower than in 2024, volumes for traditional core sectors (office, retail and industrial) show inbound global capital flows are now +48% higher than the same period last year; highlighting strong upward momentum going into the second half of 2025.