The British Pound ended last week slightly weaker against the US Dollar, retreating to around 1.3555 after a brief rebound. Investors remain cautious as attention turns to the United Kingdom’s labour market report due next week—a release that could heavily influence both the currency and the Bank of England’s (BoE) next policy move.
Labour Market Cooling Continues
The UK labour market, once resilient, has shown consistent signs of strain. Payroll data from the Office for National Statistics (ONS) revealed a year-on-year drop of 164,000 employees, with payroll numbers slipping further between June and July to 30.3 million. This marks the tenth decline in twelve months, driven largely by job losses in hospitality, catering, and retail.
Although the unemployment rate for April to June stood at 4.7%, only marginally above the previous quarter, analysts warn this stability could be misleading. The Resolution Foundation projects unemployment could soon hit 5%, its highest level since 2021, as firms adopt hiring freezes rather than large-scale layoffs.
Vacancies Falling, Youth Employment Under Pressure
The decline in vacancies has been striking. Job openings fell by 5.8% in the May–July quarter, down to 718,000—the lowest since 2021 and the 37th straight quarterly decline. Rising labour costs have compounded the issue. Employers now face higher contributions to national insurance, a raised National Living Wage, and changes to tax thresholds, pushing many firms to scale back recruitment plans.
Young people have been disproportionately affected. Unemployment among 16–24 year-olds climbed to 14.1% in the second quarter, while the number of those not in employment, education, or training (NEET) has risen to 1.22 million. Economists warn that long-term joblessness in this group could hinder future career prospects and place additional strain on the economy.
Wage Growth Still Strong, but Risks Ahead
Despite the cooling labour market, wages continue to grow at a brisk pace. Average pay excluding bonuses increased by 5% year-on-year between April and June. Public sector pay outpaced the private sector, rising by 5.7% compared with 4.8%. In real terms, wages are up 0.9%, providing workers some relief from inflationary pressures.
However, the trend may not last. Falling vacancies are expected to ease upward pressure on pay in the coming months. For the BoE, slower wage growth could help balance its policy goals. Inflation remains elevated at 4.1% in June, still double the central bank’s 2% target. Policymakers face the challenge of stimulating growth without letting price pressures resurface.
Outlook: Balancing Growth, Inflation, and Policy
The upcoming employment report will play a crucial role in shaping investor expectations. A weaker-than-expected labour market could add pressure on the BoE to advance its rate-cutting cycle in an effort to support growth. Conversely, if wage growth remains strong, policymakers may tread more carefully to avoid reigniting inflation.
The UK economy is navigating a delicate balancing act—one where falling vacancies, rising youth unemployment, and cooling growth clash with still-elevated inflation. For the British Pound, the stakes are high: volatility is likely to increase as traders weigh the next chapter in the UK’s economic story.
GBP/USD Weekly Market Outlook
The GBP/USD pair closed the week after encountering resistance at 1.35724. Prior to this, the market experienced a brief downward move before finding strong support at 1.35246. From this support level, buyers stepped in aggressively, driving a notable upward surge.
The fact that the market closed near this resistance area highlights its significance and reinforces its presence as a barrier. However, a more formidable resistance remains at 1.37900—a level last tested in July. A decisive break above this point could invite stronger bullish sentiment and potentially open the path for further upside momentum.
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