As we move into mid-July, attention in the currency markets is gradually shifting toward the UK. In recent days, the US dollar has staged a strong rebound, boosted by robust American employment data, ending its previous downward trend. Meanwhile, the UK finds itself at a more challenging economic juncture, with markets closely scrutinizing its latest hard data for hints on the next move for the British pound.
Economic indicators out of the UK suggest a growing strain. While the number of unemployed dipped slightly in May, the broader labor market remains weak. Job vacancies fell 8% compared to the previous quarter—especially noticeable in the manufacturing and construction sectors. At the same time, rising operating costs, particularly from the recent hike in National Insurance Contributions (NICs) in April, are starting to take a toll on staffing decisions. Thirteen percent of businesses have already laid off workers, and nearly 20% are considering further headcount reductions. According to the minutes from the latest Bank of England policy meeting, this softening in the labor market will have a meaningful impact on interest rate decisions moving forward.
On the consumer side, the picture remains subdued. Retail sales in the UK are up just 0.6% year-over-year, a marked slowdown from the previous 1.1%. While there was a small uptick in foot traffic during the final week of June, levels are still 1% lower than the same period last year. On top of that, more and more companies are feeling financial pressure—16% report having exhausted their cash reserves, the highest percentage since 2020, indicating that corporate confidence remains fragile.
Industrial production continues to hold at a modest 0.4% annual growth, but GDP data has drawn particular concern. The UK’s economy contracted by 0.3% in April compared to the previous month, a clear slowdown after the first quarter’s 0.7% growth. Markets are now bracing for May’s GDP release; if weak momentum persists, it could further dim hopes for a sustained UK recovery.
Inflation data paints a mixed picture. While the headline CPI slowed from 3.7% to 3.4%, and core inflation also eased, these figures don’t tell the full story. The Retail Price Index (RPI), which better reflects actual living costs, ticked up to 4.3%, suggesting households are still feeling the squeeze—putting pressure on consumer spending.
Meanwhile, the US dollar has gained momentum, propelled by strong nonfarm payroll figures and renewed safe-haven demand amid global trade uncertainties. As a result, the pound has come under clear pressure. In the short term, sterling is likely to remain on the back foot, with investors now looking ahead to key UK data—including GDP and inflation figures—to gauge whether the Bank of England may pivot toward a more dovish stance.
All told, the coming week will be pivotal for the British pound. GDP, retail sales, and inflation numbers will directly shape market sentiment on the UK economy. If data continues to soften, expectations for an earlier-than-expected rate cut by the Bank of England will likely ramp up, increasing sterling volatility. Investors are advised to keep a close eye on upcoming data releases, central bank commentary, and shifts in global sentiment to navigate potential currency risks more cautiously.
