Insights 
VT 
The UK labour market report, featuring August payrolls and July jobless rate and wages data, is the main focus in Europe today. Labour market conditions in the UK are slowing gradually, with wages easing, while the Bank of England balances these factors against persistent inflation pressures.
The ONS continues efforts to improve data accuracy, a goal for over a year. The labour force survey’s revamp is ongoing, making current data the most reliable available despite some criticisms. Policymakers use this data as a key reference point.
Labour Market Outlook
The ILO unemployment rate is estimated to remain steady at 4.7% for July. Average weekly earnings are expected to be at +4.7% over three months compared to last year, up from +4.6%. The reading excluding bonuses is predicted to ease to +4.8% over three months, down from +5.0%.
This labour market data release will occur at 0600 GMT.
Today’s labour market report signals a continuing dilemma for the Bank of England, with a slowly cooling jobs market set against wage growth that remains firm. This dynamic supports the case for interest rates remaining elevated for longer, even as other economic indicators might suggest weakness. We saw a similar situation play out in late 2023 and early 2024 when the BOE had to maintain its restrictive policy despite a slowing economy.
The ongoing concerns about the accuracy of the ONS data, a persistent issue for over a year now, introduce significant uncertainty. It becomes difficult to take strong directional views on sterling or gilts based on this single report. This environment is likely to keep implied volatility higher in short-dated options as the market has to price in the risk of future data revisions or unexpected policy shifts.
Future Market Expectations
For currency derivative traders, this suggests GBP/USD may remain range-bound in the coming weeks. With UK inflation proving stubborn, as the recent August 2025 data showed it at 3.4%, the argument for near-term rate cuts from the BOE is unconvincing. Strategies that benefit from low realised volatility, such as selling strangles, could prove effective until a clearer trend emerges.
In the interest rate markets, we should expect the BOE to hold its Bank Rate at 4.75% through its next meeting. The key opportunity lies in looking at SONIA futures, as the market may be pricing in rate cuts for early 2026 that now seem too optimistic. This allows for positioning for a “higher for longer” reality, where the path to monetary easing is much more gradual than the forward curve currently implies.
