Pound Sterling Today: Weak UK Payrolls Unlikely To Stop BoE Hikes

The Pound Sterling held relatively steady against the Euro and US Dollar on Wednesday as investors weighed signs of a cooling UK labour market against expectations the Bank of England could still raise interest rates later this year.

Analysts at Pantheon Macroeconomics argued that the sharp fall in UK payrolls reported for April likely significantly overstates the extent of labour-market weakness.

Official data showed payroll employment falling by 100,000 in April following a revised 28,000 decline in March, far worse than market expectations.

However, Pantheon said the figures appear inconsistent with broader business surveys and historical revision patterns.

“The job data are misleading, and we estimate that April payrolls will eventually be revised up to just a 3K month-to-month fall,” Pantheon said.

The consultancy noted that April payroll figures have repeatedly seen very large upward revisions in recent years.

“April usually sees the weakest first estimate of any month in the year and the largest positive revision,” analysts added.

Pantheon said survey indicators from vacancies, private payroll trackers and business sentiment surveys all point to a labour market that is softening only gradually rather than collapsing.

Cooling Labour Market Reduces Immediate BoE Hike Pressure

The weaker labour-market data prompted markets to reduce expectations for an immediate June Bank of England rate hike.

Pantheon acknowledged that the payroll figures “wipe out most of any remaining chance” of a June increase, although the consultancy still expects the Bank to raise rates in July once revised data show a less severe slowdown.

“We hold on to our call for a July rate hike because we think payrolls will be revised better,” Pantheon said.

The group argued that underlying labour-market conditions remain tighter than headline figures imply.

Vacancies have broadly stabilised over the past year, redundancies remain relatively low and broader measures of labour-market slack remain close to pre-pandemic averages.

Pantheon also suggested official wage growth data may currently be understating actual pay pressures.

“Private pay growth fell to 3.0%, but pay growth now lies well below all survey measures we monitor,” analysts said.

Pound Sterling Forecast: Inflation Still Key for GBP

Despite signs of softer hiring conditions, markets remain focused on persistent inflation risks and elevated UK interest rates.

Pantheon continues forecasting Bank Rate rising to 4.25% by the end of 2026, although policymakers appear increasingly cautious about moving too aggressively while labour-market data remain volatile.

The consultancy also warned that the official payroll data have become increasingly unreliable and may continue generating sharp market reactions in coming months.

For Sterling, investors remain caught between expectations for higher UK interest rates and concerns that economic growth is gradually weakening.

While softer jobs data briefly weighed on Bank of England hike expectations, Pantheon believes the underlying UK labour market remains considerably stronger than the headline payroll collapse suggests.