Pound slips after UK payrolls fall more than expected

The data reinforces the case for the BoE to hold rates at its meeting on Thursday, but it does not settle the broader policy debate. Private-sector regular pay rose 2.9% year on year in the three months to July, unemployment held at 4.9%, and several economists said the labour market is still not weak enough to remove the risk of later tightening if inflation stays sticky.

Pantheon Macroeconomics said the Monetary Policy Committee is “very likely to stay on hold even if inflation surprises consensus to the upside tomorrow,” while Deutsche Bank’s Sanjay Raja said a sluggish labour market should give policymakers confidence that Bank Rate remains restrictive. Lloyds added that pay growth remains broadly in line with the BoE’s 3.0% third-quarter projection, limiting upside surprise in domestic wage pressures.

For investors, the immediate takeaway is that sterling’s near-term support still hinges on inflation rather than payrolls. Wednesday’s consumer price data will be the key test for how long markets can keep pricing a later BoE hike, with Pantheon still seeing hikes in November and February and saying slack remains “stable” despite the payroll decline.

That leaves GBP vulnerable to renewed rate-volatility if inflation prints hotter than expected, even as the softer jobs report weighs on expectations for a quick policy move this week.