The Pound Sterling slipped against the Euro and US Dollar after UK labour market data reinforced expectations that the Bank of England may cut interest rates as soon as March.
Pound to Euro (GBP/EUR): 1.14582 (-0.36%)
Pound to Dollar (GBP/USD): 1.35555 (-0.53%)
Euro to Dollar (EUR/USD): 1.18304 (-0.17%)
The headline unemployment rate rose to 5.2%, a five-year high and slightly above forecasts.
Pay growth also cooled, with regular private sector wages slowing to 3.4% year-on-year.
Together, the figures suggest easing inflation pressure and give policymakers scope to loosen policy sooner rather than later.
Pantheon Macroeconomics argues the jump in unemployment is enough to “seal” a March move, particularly as the Monetary Policy Committee has recently placed greater emphasis on labour slack.
However, the UK economists also warn the deterioration may be overstated.
Survey changes continue to distort the unemployment measure, while other indicators look steadier.
Payrolls fell by only 11K in January and previous months were revised higher, pointing to stabilisation rather than a fresh downturn.
Vacancies and redundancies tell a similar story.
Job openings have been broadly flat for months and redundancy signals appear to have peaked, suggesting the labour market slowdown may have been amplified by last year’s Budget uncertainty rather than a lasting shift in demand.
Lloyds reaches a comparable conclusion.
The rise in unemployment and softer annual pay growth support a rate cut next month, yet shorter-term wage momentum remains firm.
Some policymakers are therefore unlikely to abandon concerns about persistent inflation pressure.
In practice, markets now see a March easing as the base case, but not the start of an aggressive cutting cycle.
The Bank of England appears closer to a one-step adjustment than a sustained pivot, leaving sterling sensitive to upcoming inflation data and guidance on how quickly further cuts might follow.
See full ONS data release here: Labour market overview, UK: February 2026.
