The pound edged lower on Tuesday after fresh figures showed further signs of cooling in Britain’s labour market, with unemployment holding above expectations and the number of
available jobs falling to its lowest level in more than four years.
Sterling was down around 0.1% against the US dollar at $1.352 after reaching its strongest level since May on Monday. The recent gains have been driven partly by a weaker dollar, as markets scaled back expectations for further interest-rate increases from the US Federal Reserve.
The latest UK employment figures, however, offered a more cautious picture of the domestic economy.
According to the Office for National Statistics, the unemployment rate remained at 4.9% in June, rather than easing to the 4.8% forecast by economists in a Reuters poll.
At the same time, the number of vacancies fell to 707,000 in the three months to July, down from 711,000 in the previous three-month period and the lowest level recorded since 2021.
Wage growth also continued to moderate. Regular earnings in the private sector increased by 2.8% year on year in the three months to June, the weakest rate of growth since late 2020.
The figures have strengthened the argument that Britain’s jobs market is losing momentum, potentially reducing pressure on the Bank of England to raise borrowing costs.
“The basic story here is that the jobs market is cool,” said James Smith, a developed markets economist at ING.
Smith said that, unless energy prices experience a sharp and sustained rise, the Bank of England could leave interest rates unchanged until next spring before making at least two cuts in 2027.
Financial markets are nevertheless still pricing in some prospect of tighter monetary policy before the end of this year, with traders currently betting on roughly 30 basis points of rate increases.
Sterling’s modest decline against the dollar came despite a broader improvement in its performance over recent weeks. The currency has gained almost 2% over the past two months and is now slightly higher against the dollar for the year.
The pound also slipped marginally against the euro, with the single currency trading around 85.54 pence.
Currency markets have been influenced by several forces weighing on the dollar. Expectations of further Federal Reserve rate increases have fallen, while coordinated US-Japanese efforts to support the yen in late July have also contributed to broader dollar weakness.
Oil prices edged higher on Tuesday as the conflict between Iran and the United States showed little sign of easing, with both sides warning of further military action. Renewed geopolitical tensions have provided additional support for the dollar as investors seek safer assets.
For sterling, however, the latest UK employment figures underline a more immediate concern: whether a slowing labour market will eventually translate into weaker economic growth and give the Bank of England greater room to cut rates.
The pound’s recent rally has therefore begun to face a more complicated backdrop, with international dollar weakness supporting the currency even as domestic economic indicators point towards a cooling British economy.
