TD Securities expects the UK labour market data for February to show stabilisation, with unemployment edging down to 5.1% versus 5.2% previously and a market forecast of 5.2%. It also projects job gains of 50k, compared with a market estimate of 35k and a prior reading of 84k.
The bank forecasts wage growth to ease across measures. It sees AWE at 3.6% (3m/y), AWE excluding bonuses at 3.5% (3m/y), and private earnings growth at 3.2% (3m/y), in line with consensus.
Monetary Policy Implications
As the figures are from before the Iran conflict and labour data tend to lag, TD Securities says the MPC can place more attention on inflation expectations than on current pay trends. The article notes it was produced with the help of an AI tool and reviewed by an editor.
Looking back, the February labour market data showed the steadying picture we expected with slowing wage growth. At the time, this suggested the Bank of England had more flexibility to consider easing its policy stance. That entire pre-conflict outlook, however, is now superseded by more urgent geopolitical and inflationary pressures.
The recent conflict has sent a shockwave through energy markets, with Brent crude futures surging past $110 a barrel for the first time since late 2022. Consequently, we have seen UK inflation expectations jump, with the latest YouGov survey for April showing five-year expectations climbing to 4.2%. This forces the Monetary Policy Committee to focus squarely on inflation, making those old wage numbers a secondary concern.
For us, this means the primary trade is on volatility, as the path for UK interest rates is now highly uncertain. Implied volatility on three-month sterling options has already spiked to levels reminiscent of the 2022 “mini-budget” crisis. Traders should consider strategies that benefit from large price swings, as the central bank is caught between a potential slowdown and a new inflationary shock.
Rates Market Repricing
The interest rate futures market has aggressively shifted its pricing in the last few weeks. We’ve seen traders completely erase any chance of a rate cut for 2026, and now factor in a 40% probability of another hike by August. This suggests positioning for a “higher for longer” scenario using SONIA futures or paying a fixed rate on interest rate swaps to hedge against rising borrowing costs.
