The average earnings in the United Kingdom, including bonuses, increased by 4.7% over a three-month period. This rise exceeded the forecasted 4.6% for November.
These figures indicate a growth in salaries that is slightly above expectations. The data reflects economic trends impacting wages during this time.
Hotter Than Expected November Wage Data
The November 2025 wage data, coming in at 4.7%, was hotter than we expected. This stickiness in pay growth suggests underlying inflationary pressures are not fading as quickly as hoped. It complicates the outlook for the Bank of England as we move into the new year.
This report follows the December 2025 inflation reading, which also surprised to the upside at 3.5%, still well above the 2% target. With the Bank Rate holding at 5.25%, these figures reinforce the BoE’s recent warnings about the risks of cutting rates too soon. We see this as locking in a “higher for longer” stance.
We believe the market is underpricing the risk of rates staying at current levels through the summer. The November 2025 data likely pushes back expectations for the first rate cut, which some had penciled in for May or June 2026. Trading strategies should now favor selling short-term interest rate futures, such as the SONIA contracts expiring in mid-2026.
Support For The Pound Sterling
The prospect of a more hawkish BoE should continue to support the pound sterling. We see opportunities in buying GBP calls against the US dollar, as the Federal Reserve has signaled a clearer path towards easing. Implied volatility on sterling options could also increase heading into the February BoE meeting, making long volatility positions attractive.
We must remember the lessons from the inflationary period of the early 2020s, where wage growth proved to be a persistent driver of price pressures. The Bank of England was criticized for being behind the curve back then. This historical context suggests they will err on the side of caution now, requiring overwhelming evidence of a slowdown before signaling any cuts.
