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Investing.com -- The UK labor market showed signs of weakening as jobless claims increased and the unemployment rate rose to its highest level since the pandemic, according to recent data. This softening labor market could influence the Bank of England’s monetary policy decisions in coming months.
Wage growth slowed more than expected, potentially easing pressure on the Bank of England to maintain high interest rates. Despite these developments, UBS does not anticipate any rate changes at next week’s central bank meeting.
The investment bank projects that the soft labor data increases the likelihood of a 25 basis point interest rate cut in August. UBS noted that inflation remains "uncomfortably high" with core CPI at 3.8% year-over-year and services CPI at 5.4% year-over-year as of April.
The May inflation data may not show enough improvement to justify an earlier rate cut, according to UBS. The bank expects elevated interest rates to continue supporting the British pound in the near term.
UBS forecasts the GBP/USD exchange rate to move toward 1.38 in the second half of the year and rise further in early 2026, barring a fiscal setback or deeper global economic slowdown.
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