Insights 
VT 
In June, the UK’s ILO unemployment rate remained at 4.7%, meeting expectations. Employment increased by 239,000, higher than the expected 185,000, with a previous figure of 134,000.
Average weekly earnings rose by 4.6%, slightly below the anticipated 4.7%, whereas earnings excluding bonuses rose by 5.0%, aligning with predictions. The change in July payrolls was a decrease of 8,000, an improvement on the revised previous drop of 26,000 from the initially reported 41,000.
The Labour Market Situation
The labour market remains steady, although there is a gradual softening observed in payroll numbers. Real wages are decreasing, with total pay easing to 0.5% and regular pay dropping to 0.9% in real terms from April to June, marking a two-year low.
The Bank of England may consider pausing rate cuts in September, but ongoing labour market conditions could prompt action in November or December. Balancing these conditions with consumer price inflation presents challenges, as stagflation risks persist for the UK economy.
The latest UK jobs report shows a mixed but softening picture for the labour market. While headline unemployment is stable at 4.7%, slowing wage growth and another drop in payrolls suggest economic momentum is fading. This gives the Bank of England (BOE) more room to consider cutting interest rates later in the year.
Implications for Traders
For derivative traders, this reinforces a dovish outlook on UK interest rates for the coming months. We should consider positioning for lower rates into the fourth quarter, as the market will likely increase the odds of a November or December rate cut. Futures linked to the SONIA rate for December 2025 could see increased buying interest.
This outlook should also put downward pressure on the British pound. With the Bank Rate currently holding at 5.0%, any signal of future cuts makes sterling less attractive, especially as we have seen GBP/USD struggle to hold above 1.24 this month. We can expect options traders to favour selling sterling on any rallies.
However, we must balance this with the risk of stagflation, which feels similar to the difficult environment we saw back in 2023. The latest Consumer Price Index (CPI) reading for July 2025 came in at a sticky 3.4%, well above the BOE’s 2% target. This high inflation will make the Bank hesitant to cut rates too aggressively, creating uncertainty.
Given this conflict between slowing growth and persistent inflation, volatility in UK assets is likely to rise. Traders might look at options on the FTSE 250 index, which is more sensitive to the domestic economy than the FTSE 100. Buying straddles or strangles could be a way to trade the expected increase in price swings without betting on a specific direction.
