Pound Sterling (GBP) gained modestly against the dollar but underperformed the euro as stagnant productivity, soft labor demand, and sticky wage growth underscore the UK’s stagflation risk, BBH FX analysts report.
Sterling lags euro amid soft UK labor backdrop
"GBP/USD edged higher on broad US Dollar (USD) weakness. Pound Sterling (GBP) is underperforming against EUR. The UK July labor market data matched consensus."
"The unemployment rate was unchanged for a third straight month at a four-year of 4.7% in July (BOE Q3 projection: 4.8%). Worrisomely, the vacancies-to-unemployment ratio (0.43) points to a soft labor market, with the ratio still under the BOE’s threshold equilibrium (0.53)."
"Meanwhile, UK wage growth remains a key source of underlying inflation pressure given that labor productivity is estimated at 0% in 2025. The policy-relevant private sector regular pay printed at 4.7% y/y in July (BOE Q3 projection: 4.8%) vs. 4.8% in June. Bottom line: the UK economy is skirting with stagflation which can further undermine GBP vs. EUR."
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