On July 17, 2025, the British FTSE 100 index rose by approximately 0.3%, reaching a level close to 8,972 points, in direct response to recent labor market data that revealed a clear slowdown in the UK economy. This slowdown strongly boosted expectations that the Bank of England may take a step toward cutting interest rates at its upcoming August meeting an effort aimed at stimulating economic activity and easing the pressures facing the labor market.
Data released by the Office for National Statistics showed that the unemployment rate rose to 4.7% between March and May, the highest level since mid-2021. Additionally, the number of payroll jobs declined by 41,000, and the annual wage growth rate dropped to 5%, returning to levels seen in mid-2022. Alongside that, the number of job vacancies fell to 727,000—the lowest since early 2021 highlighting a genuine weakening in the UK job market.
This drop in labor market activity helped reduce inflationary pressures, leading markets to expect a cut in the base interest rate from 4.25% to 4.00% at the Bank of England's next policy meeting. Estimates suggest there is a 77% to 80% probability of this rate cut being implemented, partially explaining the noticeable improvement in UK stock market performance.
This optimism was reflected in financial markets as the FTSE 250 index also rose by 0.4%, supported by a shift in investment toward large global companies that are expected to benefit from lower borrowing costs. On the currency front, the pound sterling declined by 0.17% against the US dollar due to growing expectations of monetary easing, while it slightly strengthened by 0.35% against the euro.
Despite these positive signals from the markets, challenges remain for policymakers. Inflation in the UK rose to 3.6% in June—the highest level since January 2024—adding complexity to the Bank of England’s upcoming decisions. While the labor market slowdown may justify a rate cut, persistent inflation still poses a risk to economic stability and demands cautious action in terms of monetary easing.
Analysts believe that a potential rate cut in August may just be the beginning of a series of further reductions expected throughout the remainder of 2025, especially if economic slowdown continues and pressure on households and businesses intensifies.
This situation directly affects both consumers and investors. For companies, lower interest rates would reduce borrowing costs, supporting expansion and investment—particularly in domestic sectors. Consumers, on the other hand, could benefit from cheaper mortgage and personal loan rates, boosting purchasing power, despite the continued inflationary pressures on basic goods and services. For investors, a rate cut would make large-cap stocks, especially those listed on the FTSE 100, more attractive, although traditional savings might see reduced returns due to lower interest on deposits.
In summary, the recent data paints a clear picture of a weakening UK labor market, which has led markets and analysts to anticipate an interest rate cut as a means of stimulating the economy. Although inflation remains a significant challenge, the Bank of England appears poised to begin a cautious path of rate reductions through the rest of 2025.
