UK Wage Growth Strengthens Inflation Outlook, Stalls BoE Policy Easing; GBP/USD Jumps

UK Labor Market Data to Delay BoE Rate Cuts as Wages Rise

UK labor market data dampens expectations of near-term Bank of England rate cuts ahead of the BoE’s interest rate decision on Thursday, September 18.

The UK unemployment rate remained 4.7% in July. However, wage growth picked up in July, suggesting an upswing in consumer spending. Average hourly earnings (including bonuses) rose 4.7% in the three months to July year-on-year, up from June’s 4.6% increase.

The Office for National Statistics revealed crucial insights into the UK labor market:

• The number of payrolled UK employees declined by 6,000 month-on-month in July and by 142,000 between July 2024 and July 2025.
• Early estimates of payrolled employees for August 2025 signaled a fall in employment, with 8,000 fewer payrolled employees.
• Job vacancies declined by 10,000 from June 2025 to August 2025, marking the 38th consecutive period of decline.
• The claimant count rose in July, but decreased year-on-year to 1.686 million.

Wage Growth Signals Hotter Inflation Outlook

July’s stronger wage growth and steady unemployment may lift consumer sentiment and boost spending. A pickup in consumer spending may fuel demand-driven inflation, potentially delaying BoE rate cuts until 2026.

Today’s data followed July’s hotter-than-expected inflation report. UK inflation accelerated in July, challenging hopes for further BoE policy easing. The annual inflation rate rose from 3.6% in June to 3.8% in July, with core inflation also climbing to 3.8% (June: 3.7%), well above the BoE’s 2% target.

ING economists suggested that today’s labor market data and August’s inflation figures could revive hopes for a November cut. But with July’s release, the focus has shifted to the upcoming August inflation report.

The current combination of higher inflation and rising wages supports a near-term BoE policy hold. However, August’s inflation report, scheduled for release on Wednesday, September 17, could change the narrative. Economists forecast headline inflation to remain at 3.8%, while predicting underlying inflation to drop to 3.6%. A sharp drop in inflation could boost November rate cut bets and weigh on the GBP/USD pair.

GBP/USD Response to the UK Labor Market Report

Ahead of the labor market report, GBP/USD dropped to $1.35920 before briefly climbing to $1.36251. After the release, the pair jumped to $1.36275 before easing back. On Tuesday, September 16, the GBP/USD was up 0.19% to $1.36249. The initial market reaction to rising wages and steady unemployment suggested traders cut dovish BoE bets.

While UK inflation and labor market data may have signaled a more hawkish BoE stance, upcoming UK economic indicators could potentially be critical.

Could Inflation Push BoE Rate Cuts Into 2026?

The UK Inflation Report (September 17) will fuel speculation about the BoE’s rate path ahead of the interest rate decision on September 18. Meanwhile, retail sales (September 19) will draw interest as investors assess the effects of inflation on consumption and the broader economy.

Rising expectations of a November policy move could push the GBP/USD pair toward the $1.35 level. Conversely, stronger data and a more hawkish BoE rate path may send the pair toward $1.37.

Stay informed here on upcoming BoE decisions, macro trends, and their impact on GBP forecasts.