Unemployment Remains Elevated

The U.K. unemployment rate stayed at 4.7% in the three months to July, according to the Office for National Statistics. This was in line with expectations and marks the highest level since July 2021, highlighting persistent softness in the labor market.

Pay growth, excluding bonuses, eased slightly to an annual 4.8%, down from 5.0% the prior month. While still elevated, the slowdown suggests some cooling in wage pressures that have been closely monitored by the Bank of England.

Growth Stalls into Second Half

The latest labor data come as the British economy shows signs of fatigue. Official figures last week revealed zero growth in July GDP, following a stronger performance in the first half of the year.

Economists now expect momentum to fade over the coming months amid headwinds from U.S. tariffs, domestic inflationary pressures, and heightened uncertainty over potential tax increases later this year.

The BoE itself forecast annual growth of just 1.25% for 2025, well below the 2% average recorded between 2010 and 2019.

Policy Outlook Ahead of BoE Decision

The central bank cut rates by 25 basis points to 4.0% in August, the lowest level since March 2023. However, the decision was split, with four of nine policymakers opposing the move given annual inflation at 3.8% — nearly double the BoE’s 2% target.

This division underscores the challenge facing policymakers ahead of Thursday’s meeting. While slowing growth and rising unemployment strengthen the case for further easing, elevated inflation remains a key obstacle to another cut in the near term.