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Pound Sterling declines amid growing concerns over UK labor market.

July 18, 2025

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The Pound Sterling trades lower against its risky peers as the UK labor market cools.
UK employers have adjusted their HR policies following an increase in contribution to social security schemes.
Fed’s Governor Waller reiterates support for an interest rate cut in the policy meeting later this month.

The Pound Sterling (GBP) trades lower against its peers, except safe-haven currencies, on Friday due to growing concerns about the United Kingdom (UK) labor market.

The Office for National Statistics (ONS) reported on Thursday that the ILO Unemployment Rate accelerated to 4.7% in the three months ending May, the highest level seen since the quarter ending July 2021. The jobless rate has risen since April, when the increase in employers’ contributions to social security schemes announced by Chancellor of the Exchequer Rachel Reeves in the Autumn Statement came into effect.

Meanwhile, a less-than-expected drop in payrolls in the three months ending May suggests that labor market conditions are not as weak as they appeared. According to the employment report, the number of workers laid off was revised lower to 25K from prior estimates of 109K.

Average Earnings, a key measure of wage growth, grew almost in line with estimates. Rising jobless rate and easing wage growth suggest that employers are adjusting their labor policies to offset the impact of the increase in their social security cost.

Cooling labor market conditions should allow Bank of England (BoE) officials to argue in favor of reducing interest rates. However, this could be difficult at a time when inflationary pressures have accelerated significantly. The UK Consumer Price Index (CPI) report for June showed on Wednesday that price pressures grew at a faster-than-projected pace.