Sterling dipped on Tuesday while British government bond yields fell after data showed the U.K.’s unemployment rate rose to a five-year high and wage growth slowed. The pound fell 0.5% against the dollar to around $1.356 and was down 0.2% versus the euro. Analysts say the job and wage data are increasing expectations that the Bank of England may cut interest rates later this year.
The pan-European Stoxx 600 remained near the flatline by midday, with regional bourses mixed. Italy’s FTSE MIB added 0.5%, Germany’s DAX rose 0.1%, and France’s CAC 40 pared earlier gains to trade slightly below the flatline. London’s FTSE 100 rose 0.4% in afternoon trading, reflecting continued resilience in the U.K. equity market despite weak labor data.
According to the report, the number of payrolled workers in the U.K. fell 0.4% year-on-year to 30.3 million in January 2026, representing 134,000 fewer employees than a year earlier and 11,000 fewer than in December. The unemployment rate climbed to 5.2%, the highest level since January 2021. Samuel Fuller, director of Financial Markets Online, noted that the weak labor market strengthens the case for monetary easing.
British government bond yields fell across the curve following the data release. The 10-year Gilt dropped nearly 4 basis points to 4.367%, while the 30-year Gilt yield fell 4 basis points to 5.168%. Futures markets are now fully pricing in two Bank of England rate cuts this year, with a 75% probability of a cut next month, highlighting market expectations for stimulus amid weakening economic activity.
