UK unemployment rose to 5.0% in Q3, the highest level since mid-2021and crucially, above forecasts.
The data showed joblessness rising by 117,000, total employment falling for the first time since early 2024, and the number of unemployed per vacancy climbing to 2.5, the highest since 2015.
Markets didn’t take it well sterling weakened across the board as traders priced in the likelihood that the Bank of England will cut rates in December, with odds now above 80%.
The WHY
The UK labour market is clearly cooling.
Job losses concentrated in government and retail, showing broad-based weakness.
Wages growth slowed to 4.8% from 5%, the weakest since 2020.
Private sector pay is softening sharply.
The data signals a familiar problem. Slowing growth, rising unemployment, but still-elevated inflation.
In macro terms, this is stagflation risk.
How It Could Impact the Bank of England Decision
Before this report, the BoE was already walking a tightrope.
Governor Bailey and Chief Economist Huw Pill have both hinted at patience, acknowledging progress on inflation but warning against cutting “too far, too fast.”
Now, with unemployment rising faster than expected, that tone is likely to tilt decisively dovish.
Markets are now pricing:
80% chance of a rate cut in December
A total of two cuts by mid-2026
The BoE has been on the path of holding rates, but this data makes it far more likely we’ll see the first move lower before year-end especially if GDP and CPI continue to cool.
If GBP Weakens, What Can We Trade It Against?
Here’s how I’m thinking about it from a trader’s perspective:
GBPCHF: A classic risk-off and policy divergence play.
The Swiss franc remains firm as a safe haven even after the SNB cut rates. GBPCHF has been trending lower and could accelerate if UK data continues to soften.GBPAUD: The RBA remains moderately hawkish, holding rates steady at 3.60% with inflation still sticky. This divergence sets up a potential carry and momentum opportunity.
GBPUSD: The USD is still benefiting from its “safety bid” amid global uncertainty. As long as the Fed remains cautious but not outright dovish, GBPUSD could grind lower toward the 1.3000 handle.