The UK labor market report, which includes August payroll figures and July unemployment rates and wage data, is today’s main topic in Europe. The UK labor market is gradually slowing down, with wages also easing. Meanwhile, the Bank of England is trying to balance these changes against ongoing inflation pressures. The Office for National Statistics (ONS) is working to improve the accuracy of its data, which has been a focus for over a year. The labor force survey is being updated, making this data the most reliable available, even with some criticisms. Policymakers rely heavily on this data.

Labor Market Outlook

The International Labor Organization (ILO) unemployment rate for July is expected to hold steady at 4.7%. Average weekly earnings are projected to be +4.7% over the last three months compared to the same time last year, up from +4.6%. Excluding bonuses, earnings are likely to ease to +4.8% over three months, down from +5.0%. This labor market report will be released at 0600 GMT. Today’s report presents a continuing challenge for the Bank of England. The job market is cooling, but wage growth remains strong. This situation supports the idea that interest rates might stay high for a longer time, even if other economic indicators show weakness. We saw a similar trend in late 2023 and early 2024 when the Bank of England had to maintain its strict policy despite a slowing economy. There are ongoing concerns about the accuracy of ONS data, which has been an issue for over a year. This uncertainty makes it hard to make strong predictions about the pound or government bonds based on this report. As a result, implied volatility in short-term options is likely to remain high as the market prepares for potential data changes or unexpected policy adjustments.

Future Market Expectations

For currency traders, this suggests that GBP/USD may stay within a limited range in the coming weeks. UK inflation remains stubborn, with August 2025 data showing it at 3.4%. This makes it hard to argue for near-term interest rate cuts from the Bank of England. Strategies that benefit from low volatility, like selling strangles, might work well until a clearer trend emerges. In the interest rate market, we can expect the Bank of England to keep its Bank Rate at 4.75% during the next meeting. A key opportunity lies in looking at SONIA futures since the market may be overly optimistic about potential rate cuts in early 2026. This creates a chance to prepare for a “higher for longer” scenario, where monetary easing will happen much more slowly than current forecasts indicate. Create your live VT Markets account and start trading now.

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