Following recent UK labour market data, there is a shift in expectations for the Bank of England’s rate cuts. Traders now anticipate the next rate cut to occur in September, rather than November, aligning with a dovish outlook.

UK rate futures indicate an increase from 39 basis points to 46 basis points of easing in 2025. The labour market report revealed the largest monthly decline in payrolls since May 2020 and a deceleration in wage growth. These developments may bolster the BoE’s stance on implementing quarterly rate cuts.

economic reassessment

What we see here is a reassessment of the Bank of England’s potential moves on interest rates, prompted by softer employment figures and waning wage pressures. The market has responded quickly—bringing forward the timing for a rate cut, effectively pricing in a 25-basis point easing as early as September. That reflected a marked change, just a fortnight ago the same traders were pointing to November.

The futures curve now expects 46 basis points of total cuts in 2025, up from 39 just a week earlier. That’s not just theory; it’s a readjustment based on real clues from the economy. The sudden fall in payrolls marked the steepest drop since the early months of the pandemic. Combined with weaker wage growth, it offers the Bank more room to act without the risk of overstoking inflation.

From our side of the market, clarity on momentum matters. High-frequency data and job market trends have created a firmer sense of direction. Baileys and colleagues may consider that extra rate flexibility is now warranted, especially if core inflation continues its glide lower. In this context, market pricing hasn’t just shifted randomly—it reflects a tactical adaptation.

market positioning

We don’t expect moves to happen without noise, but what’s changed is the footing. With rate expectations firming towards earlier action, we’re setting ourselves to interpret softer data as plausible justification—not background noise. The groundwork has been laid for more predictable quarterly cuts, should the macro indicators continue in this tone.

Therefore, we should prepare positioning accordingly, focusing less on the residual tail-risk of a tighter stance and more on the prospect of smoother trajectories in the front-end. Given how wage dynamics tend to lag broader pricing movements, the current deceleration offers a window. It’s this gap that may shape how strategies take form in the near term.

Instead of asking when cuts will happen, it’s now a question of sequencing and degree—and whether the next prints will open the door even further. Our attention rests squarely on forward-looking indicators, particularly those tied to service inflation and consumer resilience. Timing is shifting—leverage exposure should too.

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