Insights 
VT 
The UK unemployment rate for July was reported as 4.7%, matching expectations. The prior rate was also 4.7%, showing no change.
The employment change for the period was 232,000, slightly above the expected 220,000, but below the previous figure of 238,000. Average weekly earnings increased by 4.7%, aligning with forecasts, and showed a slight rise from the prior 4.6%.
Excluding Bonuses Earnings
Excluding bonuses, average weekly earnings rose by 4.8%, consistent with expectations but reflecting a slight decrease from the previous 5.0%. Payroll figures for August indicated a decrease of 8,000, which was a continuation of the downward trend seen since October last year.
These declines put the number of payrolled employees at near two-year-low levels, although they remain above pre-Covid numbers. The easing in real wages may eventually lead to lower consumer prices, aligning with the Bank of England’s longer-term economic strategies.
This morning’s labour market report reinforces the view that the UK economy is cooling down. With the figures landing exactly as expected, there is no immediate catalyst for a spike in volatility, allowing us to focus on the underlying trend. The key takeaway is that wage pressure is easing, which gives the Bank of England (BOE) more breathing room.
We believe the continued softness, particularly the gradual decline in payrolls since late 2024, cements the case for the BOE to remain on hold. The Bank Rate has been at a restrictive 5.0% for over a year now, a level set during the battle against the high inflation we saw peak back in 2022. This data makes a further rate hike extremely unlikely and brings the conversation firmly around to the timing of the first cut.
Interest Rate Outlook
For interest rate traders, this confirms that the path of least resistance for yields is lower over the medium term. Markets are already pricing the first 0.25% rate cut for the first quarter of 2026, and these numbers will solidify those expectations. Positions in SONIA futures that profit from falling rates in early 2026 look increasingly attractive.
This outlook will likely keep a lid on the pound, which has struggled for direction throughout 2025 amid sluggish economic growth figures. After the UK narrowly avoided a prolonged recession in 2024, the economy has failed to build significant momentum, capping sterling’s appeal. We see value in using options to position for potential GBP weakness against the US dollar, especially as the Federal Reserve appears to be on a much slower easing path.
In the equity space, the news is double-edged for the FTSE 100. A dovish central bank is supportive for stock valuations, but a weakening labour market signals slower corporate earnings ahead. We expect this dynamic to keep the index range-bound, making strategies like selling covered calls a prudent way to generate income while waiting for a clearer economic catalyst.
