UK Labor Market Deterioration Fuels Rate Cut Speculation as Sterling Slips
UK Labor Market Weakens, Sparking Speculation of Bank of England Rate Cuts as Sterling Falls
October 14, 2025 — The UK labor market shows signs of weakening. Recent numbers pull market interest toward a possible rate cut by the Bank of England in the fourth quarter of 2025. The sterling falls as market players see more economic uncertainty.
Key Labor Market Indicators Signal Softening Conditions
The unemployment rate in the UK climbs to 4.8% in August from 4.7% in July. This change points to a cooling market that could ease pressure on wages. In the same time, average hourly earnings (including bonuses) rise by 5% year-over-year for the three months ending in August. This faster wage growth may keep prices high and mix with other facts that the bank will weigh.
Data from the Office for National Statistics (ONS) share more details:
- The number of payrolled employees drops by 10,000 in August and by 93,000 from August 2024 to August 2025.
- Early numbers for September 2025 show another drop with 10,000 fewer payrolled employees.
- Job vacancies fall by 9,000 from August to September 2025, marking the 39th straight month of fewer openings.
- The claimant count goes up in September but stays lower than last year at 1.692 million.
Bank of England Rate Cut Views Grow Amid Mixed Signals
The mixed signals in the labor market stir thoughts of a softer monetary stance at the Bank of England. High unemployment may lead to less spending by consumers. That change might pull down inflation so a rate cut seems possible. Yet, strong wage gains may keep inflation above the target of 2% and make a cut harder.
In August, inflation steady at 3.8%, a rate that exceeds the bank’s target. With the rising wages, retail sales also move up by 0.5% in August. These points show that consumer demand still holds on even as prices rise.
BoE Monetary Policy Outlook
Sarah Greene, a member of the Bank of England Monetary Policy Committee, stated:
"I think that our monetary policy stance is still restrictive, and so I do think that Bank Rate is still on a downward path. But it’s less restrictive than it had been, and that’s a concern if you consider that inflation has been ticking up for the past year."
Her words show a careful view about a rate cut in the near future. Economists at ING now see a lower chance of a November cut. They look to early 2026 for a softer monetary policy. Their numbers show:
- No more rate cuts in 2025.
- A possible start of rate cuts in February 2026 with up to three cuts during next year.
Market Reaction: Sterling Under Pressure
After the labor market numbers came out, the GBP/USD pair wavered. Before the report, the pair fell to $1.33227, then swept up to $1.33521, and finally dropped to $1.33075 afterward. By Tuesday morning on October 14, GBP/USD rested at about $1.33079, down 0.18%. This move shows that investors hold back and lean toward a softer policy at the BoE.
Outlook for the Pound and Upcoming Economic Data
Analysts now watch upcoming UK economic releases. They look to the GDP report on October 16, inflation numbers on October 22, and retail sales with the Services Purchasing Managers’ Index on October 24. These figures will shape thoughts on the bank’s next steps.
If more signs of a slowing economy show, the pound may drop further. It could test the area of $1.3250 against the US dollar. A strong economic report, on the other hand, may boost the pair toward $1.35. Investors and experts will keep a close watch. They then decide how the soft labor market and steady wage growth will guide the path of the Bank of England in the coming months.
About the Author
Bob Mason brings more than 28 years of experience in finance. He works with currencies, commodities, alternative assets, and global equities. His work mainly tracks markets in Europe and Asia.
For ongoing insights and market news, stay tuned to official BoE announcements and new UK economic reports.
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