Yesterday's UK employment data underlined once again why markets are quite bullish on the Pound Sterling (GBP): job growth was very strong, surprisingly pushing the unemployment rate down to its lowest level in half a year. Wage growth slowed, but including bonuses it slowed slightly less than expected. So the UK labor market seems to remain very solid and does not require an urgent interest rate cut, Commerzbank’s FX analyst Michael Pfister notes.

Risk of faster rate cuts is rising in the UK

“This is likely to have been an outlier, as most of the increase was due to an extraordinary rise in travel prices – seasonally adjusted, these prices rose by almost 2% month-on-month, the highest level since the beginning of 2022. As in other European countries, this could be linked to Taylor Swift's world tour. She gave five concerts in London in August, which probably pushed up airfares and hotel prices significantly.”

“This effect is likely to be partly reversed in September. Accordingly, service prices should have risen at a much slower pace, i.e. they should have returned to the trend in wage growth. This is also supported by the fact that only travel prices rose exceptionally strongly in August. Other components of services inflation, such as prices for recreation and culture, are more closely linked to wage growth and have risen at a much slower pace. In short, there is much to suggest that the brief upward blip in August will be smoothed out.”