Unemployment holds as pound moves up

Sterling was little changed against the euro to start the week but did manage to climb to its best level over the US dollar in around three months. This morning’s news that UK unemployment remained at 4.9% in the three months to June seemed to have only a marginal impact on the pound. Average earnings collected by UK workers increased by a slighter faster rate than expected in the same time period.

Tomorrow’s inflation report looks much more significant for sterling, with experts predicting headline Consumer Price Inflation (CPI) might reach 3% after three months of decline. If that were to happen, it is likely that the Bank of England would come under pressure to raise interest rates at its next meeting. The flip side is also true, as the pound might weaken should the expected increase in inflation not come to pass.

The British labour market is more worried about job security than at any time since 2023, an S&P report said on Monday. Despite a modest ‘Burnham bounce’ in future economic expectations, more people are dipping into savings and requesting credit as financial conditions remain challenging.

All of this is framed by the conflict in the Middle East and the price of oil and gas. Unfortunately, there isn’t much in the way of good news to report here. Brent crude hovered around $90 to the barrel yesterday as President Trump broadened his threat of strikes to Oman, which he accused of interfering with the US’s naval blockade.

The European Central Bank became the latest major institution to warn about American tech stocks yesterday. A price correction in companies most exposed to AI is likely, according to the post, which could spell trouble for the eurozone given the estimated €400bn of retail exposure.