Sterling rises as UK labour data strengthens Bank of England rate hike bets

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Sterling rises on UK labour data

Highlights

UK labour data show rising payrolled employees, falling unemployment, and faster-than-expected wage growth, strengthening expectations for a Bank of England rate hike on November 5.
Sterling gains 0.3% to $1.3343 against the dollar and 0.3% to 84.04 pence against the euro, hitting its strongest euro level since May 2025.
Money market futures almost fully price a quarter-point Bank of England hike next month and four hikes by mid-2026, while Brent crude rises above $111 a barrel amid Middle East tensions.

Labour data boosts November policy expectations

As reported by Reuters, preliminary UK jobs figures show payrolled employees increasing, the unemployment rate falling and average hourly earnings growing faster than expected in the three months to August. The data add to a run of better-than-forecast economic releases that support the case for a Bank of England rate increase when policymakers meet on November 5.

Tommy von Brömsen, FX strategist at Handelsbanken, says the UK economy is surprising on the upside and that there is room for more tightening. He says rate differentials are likely to move in favour of the pound going forward.

Sterling is last up 0.3% against the dollar at $1.3343. Against the euro, the pound is also up 0.3% at 84.04 pence, after touching 83.95 pence on Monday, its strongest level versus the single currency since May 2025.

Markets price wider tightening path

Money market futures are almost fully pricing in a quarter-point rate hike from the Bank of England next month. Investors are also fully pricing in four rate hikes by the middle of next year.

Lloyds senior UK economist Nikesh Sawjani says some underlying details in the labour market release, especially a decline in vacancies, do not materially strengthen the case for a more aggressive series of rate increases after November. In his view, the data reinforce expectations for a November move rather than setting out a compelling argument for a steeper path thereafter.

Sawjani says the outlook for bank rate continues to depend mainly on developments in the Middle East, their effect on energy prices and whether higher costs feed through into domestic wages and prices. Oil prices are up sharply on Tuesday with limited signs of progress toward ending the war, and Brent crude futures are last above $111 a barrel, their highest since May.

Our earlier article on a possible Bank of England move in November explained that persistent inflation pressures and a run of stronger UK data were pushing most economists toward expecting a 25-basis-point rate hike to 4.0%. It also highlighted that the outlook beyond November remained uncertain, with energy-price dynamics and policymakers’ guidance seen as key factors in determining whether further tightening would follow.

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