The Pound Sterling (GBP) outperformed as UK labor market conditions eased and the December PMI signaled firmer private sector growth, while markets fully priced in an upcoming Bank of England rate cut, BBH FX analysts report.

UK unemployment hits highest since Q1 2021

"GBP is outperforming. UK labor market condition continued to ease in October while the UK December PMI points to firmer private sector growth traction. The Bank of England (BOE) remains on track to deliver a rate cut on Thursday (93% priced-in) but the easing path ahead should remain gradual. We expect GBP to continue underperforming on the crosses."

"The unemployment rate matched consensus at 5.1% (highest since Q1 2021) vs. 5.0% in September and job vacancies have fallen further. This has kept the vacancies-to-unemployment ratio well below its estimated equilibrium level (0.50), indicative of weaker labor demand."

"Wage growth slowed but remains a key source of underlying inflation pressure given that labor productivity is estimated at -0.2% in 2025. The policy-relevant private sector regular pay fell to the lowest since late 2020 at 3.9% y/y (consensus: 3.8%) vs 4.2% in September. Finally, the composite PMI increased to a 2-month high at 52.1 (consensus: 51.5) vs. 51.2 in November, reflecting an improvement in services and manufacturing activity."