The UK unemployment rate for July stands at 4.7%, which was expected. This rate is unchanged from the previous month. During this period, the employment change was 232,000, somewhat above the forecast of 220,000 but below last month’s figure of 238,000. Average weekly earnings rose by 4.7%, matching predictions and slightly increasing from the earlier 4.6%.

Excluding Bonuses Earnings

When excluding bonuses, average weekly earnings went up by 4.8%. This also met expectations but marked a small drop from the previous 5.0%. Payroll figures for August showed a reduction of 8,000, continuing a downward trend that started in October of last year. These declines have pushed the number of payrolled employees close to a two-year low, even though they remain above pre-Covid levels. The drop in real wages may lead to lower consumer prices, which aligns with the Bank of England’s long-term economic plans. Today’s labour market report emphasizes that the UK economy is slowing down. With the numbers hitting expectations exactly, there are no sudden sparks of volatility, allowing us to focus on the overall trend. The main point is that wage pressures are decreasing, providing the Bank of England (BOE) with more flexibility. We believe the ongoing softness, especially the steady drop in payrolls since late 2024, supports the idea that the BOE will hold rates steady. The Bank Rate has been at a high 5.0% for over a year, set during efforts to combat the high inflation peak of 2022. This data makes another rate hike very unlikely and shifts the discussion towards when the first rate cut might happen.

Interest Rate Outlook

For interest rate traders, this suggests that yields are likely to decrease in the medium term. Markets are already pricing in a 0.25% rate cut for the first quarter of 2026, and this data will strengthen those predictions. Positions in SONIA futures that benefit from falling rates in early 2026 are looking increasingly appealing. This outlook may keep pressure on the pound, which has struggled for direction throughout 2025 due to slow economic growth. After narrowly avoiding a prolonged recession in 2024, the UK economy hasn’t gained much momentum, limiting sterling’s attractiveness. We see options as a way to position for potential GBP weakness against the US dollar, especially since the Federal Reserve is expected to ease rates more slowly. In the equity market, the news is mixed for the FTSE 100. A dovish central bank generally supports stock valuations, but a slowing labour market suggests slower corporate earnings ahead. We expect this situation to keep the index stagnant, so strategies like selling covered calls could be a smart way to generate income while waiting for clearer economic signals. Create your live VT Markets account and start trading now.

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