The British pound rose versus the US dollar but slipped against the euro as UK labor market data showed persistent weakness, with job losses accelerating in December and over 2025. Easing wage growth and subdued private-sector pay leave the Bank of England room for further rate cuts, with markets pricing in a total of 50bps over the next year, pressuring GBP, BBH FX analysts report.

Unemployment steady at pandemic-era highs

“GBP is up versus USD and down against EUR. UK labor market conditions remain weak. The unemployment rate stuck to near pandemic-era highs at 5.1% vs. 5.1% in October, matching consensus and the Bank of England’s (BOE) projection. However, labor demand worsened as payrolled employment fell -43k in December and -184k over 2025. That’s the fastest annual pace of job cuts since 2021.”

“Importantly, easing wage pressures leaves room for the BOE to deliver additional cuts later this year. The policy-relevant private sector regular pay growth dropped to a five-year low at 3.6% y/y (consensus: 3.7%) vs. 3.9% in October and is tracking the BOE’s Q4 projection of 3.5%. The swaps curve price-in 80% odds the BOE delivers a total of 50bps of rate cuts to 3.25% over the next twelve months which is a headwind for GBP.”

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