Wage Growth Signals Hotter Inflation Outlook
July’s stronger wage growth and steady unemployment may lift consumer sentiment and boost spending. A pickup in consumer spending may fuel demand-driven inflation, potentially delaying BoE rate cuts until 2026.
Today’s data followed July’s hotter-than-expected inflation report. UK inflation accelerated in July, challenging hopes for further BoE policy easing. The annual inflation rate rose from 3.6% in June to 3.8% in July, with core inflation also climbing to 3.8% (June: 3.7%), well above the BoE’s 2% target.
ING economists suggested that today’s labor market data and August’s inflation figures could revive hopes for a November cut. But with July’s release, the focus has shifted to the upcoming August inflation report.
The current combination of higher inflation and rising wages supports a near-term BoE policy hold. However, August’s inflation report, scheduled for release on Wednesday, September 17, could change the narrative. Economists forecast headline inflation to remain at 3.8%, while predicting underlying inflation to drop to 3.6%. A sharp drop in inflation could boost November rate cut bets and weigh on the GBP/USD pair.
GBP/USD Response to the UK Labor Market Report
Ahead of the labor market report, GBP/USD dropped to $1.35920 before briefly climbing to $1.36251. After the release, the pair jumped to $1.36275 before easing back. On Tuesday, September 16, the GBP/USD was up 0.19% to $1.36249. The initial market reaction to rising wages and steady unemployment suggested traders cut dovish BoE bets.
