GBP fluctuates as UK employment data remains soft – BBH

British Pound Mixed as UK Labor Market Remains Fragile

The British pound gained ground against the US dollar but weakened compared to the euro following the release of UK employment figures that highlighted ongoing challenges. December saw a sharper decline in jobs, and losses are expected to continue through 2025. Slower wage increases and muted private sector pay growth are giving the Bank of England more flexibility to lower interest rates, with markets anticipating a total reduction of 50 basis points over the coming year, according to BBH FX analysts. This outlook is weighing on the pound.

Jobless Rate Remains Elevated

The pound has strengthened against the dollar but lost value versus the euro as labor market weakness persists in the UK. The unemployment rate held steady at 5.1% in November, unchanged from October and in line with both market expectations and the Bank of England’s forecasts. Despite this, labor demand deteriorated, with payroll employment dropping by 43,000 in December and by 184,000 over the course of 2025—the steepest annual decline since 2021.

Crucially, softer wage growth is creating space for the Bank of England to consider further rate reductions later this year. Regular pay growth in the private sector, a key metric for policymakers, fell to 3.6% year-over-year—a five-year low—slightly below expectations and down from 3.9% in October. This figure closely matches the Bank’s fourth-quarter projection of 3.5%. Current market pricing suggests there is an 80% probability that the Bank of England will cut rates by a total of 50 basis points to 3.25% within the next year, which could continue to put downward pressure on the pound.