Pound Sterling was broadly steady on Tuesday after UK labour market figures suggested employment remained more resilient than expected, reinforcing expectations that the Bank of England will keep interest rates unchanged for an extended period.
At the time of writing, the Pound-to-Dollar exchange rate (GBP/USD) traded around 1.35, while the Pound-to-Euro exchange rate (GBP/EUR) held close to 1.18, leaving Sterling near its strongest levels of 2026 despite signs that wage growth continues to moderate.
Pound to Euro (GBP/EUR): 1.177261 (+0.06%)
Pound to Dollar (GBP/USD): 1.344907 (+0.13%)
Euro to Dollar (EUR/USD): 1.142403 (+0.06%)
June’s employment report painted a mixed picture. Payroll employment slipped by 4,000 during the month, less than the 8,000 decline expected, while May’s figure was revised higher.
The unemployment rate held steady at 4.9%, matching forecasts, while Labour Force Survey employment rose by a stronger-than-expected 148,000 over the three months to May.
Meanwhile, private sector regular pay growth eased to 2.9%, consistent with the Bank of England’s inflation target.
Pantheon Macroeconomics said the overall message was that the labour market is proving much more resilient than many had anticipated.
“The labour market was easing only gradually, if at all, in May and June.”
The consultancy noted that the unemployment rate has now been broadly unchanged for around nine months, vacancies edged higher, redundancies fell and revisions to payroll employment were overwhelmingly positive.
“The net news on payrolls was heavily upside.”
Pantheon also believes lower immigration has fundamentally altered how payroll figures should be interpreted.
“Payrolls need to rise by only around 5K a month to keep the jobless rate steady.”
Although official average earnings growth slowed again, Pantheon remains sceptical that wage pressures have eased as much as the headline figures suggest.
“All pay indicators apart from AWE broadly match the picture from quantities of a labour market that is barely easing anymore.”
As a result, the consultancy believes the Monetary Policy Committee is unlikely to rush into lowering borrowing costs.
“We think a long period of rates on hold, with risks skewed to a hike, beckons.”
Lloyds also highlighted the divergence between softer wage growth and firmer employment data.
“The takeaway for the MPC is likely to be that inflationary risks from earnings growth continue to gradually moderate.”
The bank noted that private sector pay growth is now back below its pre-pandemic average, helping offset higher imported energy costs. However, it also pointed to signs that labour market weakness has stabilised, with unemployment holding at 4.9%, total hours worked rebounding and payroll employment remaining broadly consistent with business surveys.
“In short, some of the signs of weaker activity in the labour market have abated.”
Pound Sterling Forecast: BoE Still Set to Keep Rates Higher for Longer
Both Pantheon and Lloyds believe the latest figures strengthen the case for the Bank of England to proceed cautiously.
Pantheon expects policymakers to remain on hold for an extended period, arguing that underlying labour market conditions remain tighter than the official wage data suggest.
Lloyds agrees that moderating earnings growth should reassure more dovish MPC members, but believes today’s employment figures reduce concerns that the economy is weakening sharply.
For Pound Sterling, the combination of resilient employment, stable unemployment and easing, but still solid, wage growth is likely to keep expectations for imminent interest rate cuts firmly in check.
