The British pound traded below $1.36 on Wednesday as investors digested softer inflation and labor market data, reinforcing expectations that the Bank of England could begin cutting interest rates in the coming months.
Data released by the Office for National Statistics (ONS) showed that the UK’s annual inflation rate slowed to 3.0% in Januarydown from 3.4% in December and marking the lowest reading since March 2025. The moderation was largely driven by slower increases in transport and food prices.
Core inflation, which excludes volatile items such as energy and food, also eased to 3.1%its lowest level since August 2021, indicating broader price pressures may be cooling.
The inflation figures followed a softer-than-expected labor market report released a day earlier. Average weekly earnings, including bonuses, rose 4.2% in the three months to December, the slowest pace since the period to August 2024 and below market expectations. Meanwhile, the unemployment rate climbed to 5.2%the highest level since early 2021.
Following the data, traders ramped up expectations of monetary easing. Markets are now fully pricing in a 25-basis-point rate cut by Aprilwith a 76% probability of a move as early as March. Two rate cuts are also fully priced in by November, reflecting growing confidence that policy could shift as inflation trends lower.
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