Following the latest UK labour market data, expectations for rate cuts by the Bank of England are changing. Traders now expect the next cut in September, not November, reflecting a more cautious outlook. UK rate futures show an increase from 39 basis points to 46 basis points of easing in 2025. The recent labour market report indicated the biggest monthly drop in payrolls since May 2020 and a slowdown in wage growth. These changes may support the BoE’s plan for quarterly rate cuts.

Economic Reassessment

This is a reassessment of the Bank of England’s potential interest rate actions due to softer employment data and reduced wage pressures. The market reacted quickly, moving the expected rate cut to September instead of November. Just two weeks ago, traders were still eyeing November. The current futures curve predicts a total of 46 basis points of cuts in 2025, up from 39 just a week ago. This is not just speculation; it’s an adjustment based on actual economic signals. The sharp decline in payrolls is the steepest drop since the early months of the pandemic. Coupled with slower wage growth, this gives the Bank more room to act without worsening inflation. For market participants, understanding momentum is essential. Data on job trends has provided clearer guidance. Bailey and colleagues might see the need for greater rate flexibility, especially if core inflation continues to decline. The market’s adjustments are not random; they are strategic changes.

Market Positioning

While we expect some noise during these moves, the foundation has shifted. With a stronger expectation for earlier rate cuts, we are now interpreting weaker data as valid justification and not just background noise. The groundwork is set for more predictable quarterly cuts if macro indicators continue in this direction. We should adjust our positioning accordingly—shifting our focus from the risks of tighter policies to smoother paths ahead. Given that wage trends often lag behind broader price movements, the current slowdown presents an opportunity. This gap could influence strategy development in the near future. Instead of questioning when cuts will happen, we now consider their timing and magnitude—along with whether upcoming releases will provide further clarity. Our focus is on forward-looking indicators, especially those related to service inflation and consumer resilience. As timing changes, so should our exposure strategies. Create your live VT Markets account and start trading now.

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