**UK Wage Growth Expected to Ease; Pound Steady**
*By Kenny Fisher, adapted and expanded for enhanced detail and length; original article found at MarketPulse*
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The spotlight is firmly on the United Kingdom this week as investors and traders await a slew of key economic data that are likely to shape the short-term trajectory of the British pound. One of the most significant indicators in focus is wage growth, which has been running particularly hot in recent months, thus contributing to sticky inflation and continued monetary policy caution from the Bank of England (BoE). As anticipation mounts ahead of next week’s Bank of England policy meeting, market players are closely scrutinizing signs that wage pressures might finally be abating. A moderation in wage growth could offer the central bank some much-needed breathing room, and potentially pave the way for a loosening of its hawkish stance.
In the backdrop, sterling has been firmly resilient, holding steady as markets adjust to shifting expectations around BoE rate cuts. However, whether the currency can sustain its position will largely depend on key economic releases, especially the upcoming labor market report.
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## Current Landscape: The UK Economy and the BoE
The United Kingdom’s economic landscape has been defined by a mixture of persistent inflation, snail-paced growth, and a resilient labor market. The BoE, like many other global central banks, has found itself walking a fine line between taming rising prices and not unduly crimping economic momentum.
### Background Factors:
– **Unemployment:** The UK’s unemployment rate has remained relatively low, hovering around multi-decade lows, suggesting underlying strength in the labor market despite broader economic uncertainty.
– **Inflation:** Inflation has been running well above the BoE’s 2 percent target, though recent months have seen some signs of moderation.
– **Wages:** Wage growth, particularly, has been a double-edged sword — supporting household incomes but raising concerns about second-round inflation effects.
### Bank of England’s Dilemma
Rising wages have undermined the effectiveness of rate hikes so far, as they risk stoking further inflation. Governor Andrew Bailey and his colleagues have signaled that they require clear evidence of softening wage pressures before considering rate reductions. While headline CPI has come off its peaks, policymakers remain concerned about the persistence of services inflation and the stickiness of underlying price growth linked to high wage settlements.
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## Key Data to Watch: Labor Market and Wage Growth
The most anticipated release this week is the labor market report, with a sharp focus on wage growth metrics.
### What Markets Expect:
– Average weekly earnings are projected to slow, both with and without bonuses. Slower wage growth could reduce inflationary pressures, increasing the likelihood of a less aggressive BoE.
– Unemployment data will also be closely watched for signs of slack emerging in the labor market, which could help rein in wage gains.
#### Latest Forecasts (according to consensus estimates):
– **Average Earnings (including bonuses):** Expected to rise by 5.7 percent (Year over Year) versus a previous reading of 5.9 percent
– **Average Earnings (excluding bonuses):** Projected at 6.0 percent versus prior 6.0 percent
– **Unemployment Rate:** Anticipated at 4.3 percent, unchanged from last reading
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## Market Reaction: Sterling Remains Steady
Sterling has demonstrated notable resilience against its major peers in the run-up to the labor market report. The pound is hovering near the 1.27 level against the US dollar, relatively unchanged over the past sessions. This stability comes even as traders recalibrate their expectations around BoE policy direction in the second half of the year.
### Factors Behind the Pound’s Holdings:
– **Delayed Rate Cuts:** Market participants have pushed back the timeline for BoE easing, penciling in the first 25 basis point cut not before August.
– **US Dollar Movements:** The pound’s performance has also benefited
Read more on GBP/USD trading.