Pound Drops as UK Jobless Rate Hits Five-Year High and Wage Growth Slows

UK Economic Indicators and Currency Impact

By Harry Robertson

Unemployment Rate Trends

LONDON, Feb 17 (Reuters) - The pound dropped on Tuesday after data showed Britain's unemployment rate rose to a five-year high in December while wage growth cooled, potentially adding to the case for further Bank of England rate cuts.

Wage Growth Analysis

Sterling was last down 0.55% against the dollar at $1.3555, its lowest since February 6, having traded at $1.3613 before the figures were released.

Bank of England's Monetary Policy

The pound also fell against the euro, with the single currency up 0.34% at 87.27 pence.

Britain's unemployment rate rose to 5.2% in the fourth quarter of 2025, up from 5.1% in the prior three months and the highest such reading since 2020. Excluding the COVID-19 pandemic, it was the highest jobless rate since 2015.

Wage growth, excluding bonuses, slowed to 4.2% year-on-year in the three months including December, down from 4.4% in November.

Regular private sector wage growth - which is closely watched by the BoE - slowed to 3.4% year-on-year, from 3.6%.

"This is yet another soft labour market report," said Luke Bartholomew, deputy chief economist at investment company Aberdeen. "Crucially, from the perspective of the Bank of England and the outlook for inflation, this weakness is continuing to pull down on wage growth."

He added: "For now it seems there is a clear case for a further rate cut at the Bank's next meeting in March, and we continue to expect rates to fall to 3% later this year."

Expectations of lower interest rates tend to weigh on a currency by making a country's bonds look less attractive.

The Bank of England held interest rates at 3.75% earlier this month but more policymakers voted for a cut than analysts had expected, causing traders to increase their bets on further reductions this year.

Economists polled by Reuters expect the BoE to lower rates in March and to cut them once more this year.

Inflation data on Wednesday is expected to show headline price growth slowed to 3% year-on-year in January from 3.4% in December.

The BoE expects inflation to slide to around its 2% target in April, pulled down by factors including Britain's regulated energy prices and policies in the November budget.

Despite Tuesday's fall, the pound has risen around 0.6% this year against the dollar as the U.S. currency has suffered from the Trump administration's unpredictable economic policies and as the British economy has performed slightly better than expected.

(Reporting by Harry Robertson, editing by Alun John and Alex Richardson)