In June, the UK’s ILO unemployment rate held steady at 4.7%, matching expectations. Employment rose by 239,000, surpassing the forecast of 185,000 and exceeding the previous count of 134,000. Average weekly earnings increased by 4.6%, just shy of the predicted 4.7%. Earnings, excluding bonuses, grew by 5.0%, which aligned with predictions. However, the July payrolls showed a decline of 8,000, an improvement from the revised drop of 26,000, which was initially reported as a drop of 41,000.

The Labour Market Situation

The labour market is stable but shows signs of softening in payroll numbers. Real wages have declined, with total pay easing to 0.5% and regular pay falling to 0.9% in real terms from April to June, hitting a two-year low. The Bank of England might consider delaying rate cuts in September. Still, ongoing labour market conditions could lead to action in November or December. Balancing these conditions with consumer price inflation is tough, as stagflation risks remain for the UK economy. The latest UK jobs report presents a mixed but weakening view of the labour market. While the unemployment rate is steady at 4.7%, slower wage growth and another drop in payrolls indicate that economic momentum is fading. This situation gives the Bank of England (BOE) more flexibility to think about cutting interest rates later this year.

Implications for Traders

For derivative traders, this strengthens the expectation of lower UK interest rates in the coming months. We should position ourselves for lower rates heading into the fourth quarter, as the market is likely to raise the likelihood of a rate cut in November or December. Futures linked to the SONIA rate for December 2025 may see increased buying interest. This outlook could also exert downward pressure on the British pound. With the Bank Rate at 5.0%, any indication of future cuts makes sterling less appealing, especially as GBP/USD has struggled to stay above 1.24 this month. We can expect options traders to prefer selling sterling during any price increases. However, we need to be mindful of stagflation risks, reminiscent of the tough conditions seen in 2023. The latest Consumer Price Index (CPI) for July 2025 showed a persistent inflation rate of 3.4%, well above the BOE’s 2% target. This high inflation may cause the Bank to hesitate in making significant rate cuts, leading to uncertainty. Given the tension between slowing growth and ongoing inflation, we can anticipate increased volatility in UK assets. Traders may look at options on the FTSE 250 index, which reacts more to the domestic economy than the FTSE 100. Buying straddles or strangles could be an effective way to capitalize on expected price swings without betting on a specific direction. Create your live VT Markets account and start trading now.

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