Sterling rises as strong labour market data reinforces rate hike bets

The British pound rose on Tuesday after jobs data pointed towards a bottoming in the labour market, reinforcing the case for a rate hike from ‌the Bank of England when it meets next month.

A preliminary measure of payrolled employees rose, the unemployment rate fell and average hourly earnings grew faster than expected in the three months to August, official figures showed. The labour market figures were the ‌latest in a string of better-than-forecast economic data that could allow the BoE to raise rates at next month's ‌meeting.

"The UK economy is surprising on the upside. There's room for more hiking," said Tommy von Brömsen, FX strategist at Handelsbanken. "Rate differentials are going to go in favour of the pound going forward."

Sterling was last up 0.3% against the dollar at $1.3343. Against the euro, the pound was ⁠also ​up 0.3% at 84.04 pence. It ⁠hit its strongest level against the single currency since May 2025 on Monday at 83.95 pence.

BOE TO HIKE NEXT MONTH Money market futures ⁠were almost fully pricing in a quarter-point rate hike when the BoE announces policy on November 5. Investors were also fully pricing ​in four rate hikes by the middle of next year.

Lloyds' senior UK economist Nikesh Sawjani believes some ⁠of the underlying metrics in Tuesday's labour market data do not strengthen the case for more rate rises from the BoE, notably a decline in ⁠vacancies ​which suggests subdued labour demand. "The release reinforces expectations of a November hike, rather than making a compelling case in itself for a more aggressive path thereafter," Sawjani said, adding that labour market developments remain secondary to the ⁠wider monetary policy narrative.

"The outlook for bank rate continues to hinge primarily on developments in the Middle East, their implications ⁠for energy prices and whether higher ⁠costs generate second-round effects in domestic wages and prices." Oil prices were up sharply on Tuesday on few signs of progress in efforts to end the Middle East war. ‌Brent crude futures were ‌last above $111 per barrel, their highest since May.