The increase in income contributes significantly to the inflation rate, potentially pressuring the Bank of England (BoE) to raise interest rates once again.

The UK's employment report this afternoon displayed mixed conditions. However, the Pound Sterling strengthened due to the ongoing rise in household income data. GBP/USD bounced around 0.4% to reach a daily high around the 1.2750 range, while GBP/JPY hit a new high not seen since December 2015.

GBP/USD today

The UK's unemployment rate rose from 4.0% to 4.2% in June 2023. The number of Unemployment Claims in the United Kingdom also increased by 29.0k in July 2023, whereas the previous consensus had expected a decrease of 7.3k.

The data indicates a decline in demand in the UK labor market. Nevertheless, wage growth remains quite high.

The Average Earnings Index Plus Bonus accelerated from 7.2% to 8.2% in June 2023, surpassing the earlier consensus of a slight increase to 7.3%. The Average Earnings Index Without Bonus also rose from 7.5% to 7.8%.

The increase in income contributes significantly to the inflation rate; thus, high wage growth has the potential to anchor inflation at a high level. A situation like this could pressure the Bank of England (BoE) to raise interest rates again in the upcoming September, possibly by 25 basis points.

James Smith, an economist at ING, conveyed that despite the observed weakening in recruitment and continuous enhancements in labor supply, the Central Bank will maintain its emphasis on wages.

Commenting on the upcoming CPI figures, he expressed the view that there exists potential for positive service inflation surprises. However, he concluded that the likelihood of an interest rate hike in September remains definite.

The current negative market sentiment is constraining the fluctuations of high-risk currencies such as the Pound Sterling, which mitigates the impact of this data.

Additionally, market participants are awaiting the release of UK consumer inflation data on Wednesday and UK retail sales data on Friday. Both of these releases can offer further insights into the Bank of England's interest rate policy and the future direction of Sterling's movement.