Sterling declined on Tuesday after data revealed that the UK’s unemployment rate hit a five-year high in December and wage growth slowed, which could strengthen arguments for additional Bank of England rate cuts.
The Pound was down 0.55% versus the Dollar at $1.3555 at the time of writing, its lowest level since 6th February, having traded at $1.3613 before the data release.
The currency also weakened against the Euro, which rose 0.34% to 87.27 pence.
The UK’s unemployment rate climbed to 5.2% in the fourth quarter of 2025, up from 5.1% in the previous quarter, marking the highest level since 2020. Excluding the impact of the COVID-19 pandemic, it was the highest jobless rate recorded since 2015.
Wage growth, excluding bonuses, slowed to 4.2% year-on-year for the three months including December, down from 4.4% in November.
Regular private sector wage growth, a closely monitored indicator by the Bank of England, eased to 3.4% year-on-year from 3.6%.
The Bank of England kept rates at 3.75% earlier this month, but more policymakers supported a cut than analysts had anticipated, prompting traders to raise their bets on further reductions this year, Reuters news agency reports.
Economists surveyed by Reuters predict that the Bank of England will cut rates in March and again later this year.
Inflation data due on Wednesday is expected to show headline price growth easing to 3% year-on-year in January, down from 3.4% in December.
The Bank of England anticipates that inflation will fall to around its 2% target by April, influenced in part by Britain’s regulated energy prices and measures introduced in the November budget.
Despite Tuesday’s decline, the Pound has gained around 0.6% against the Dollar so far this year, as the US currency has been weighed down by the Trump administration’s unpredictable economic policies and the British economy has performed slightly better than expected.