Headwinds hit the British Pound as this week’s inflation numbers took a surprise jump in June and newly released labour data showed a steep climb in unemployment rates. Now the Bank of England is facing a tough decision on what to do next.

The Office for National Statistics revealed that in June the annual inflation surged to 3.6% spiking up from the previous 3.4% in May – a number well beyond what market experts had predicted. This level of inflation has not been seen since January 2024, with the increase mainly due to the notable rise in prices of food and transportation.

Rising inflation would generally push for lifting interest rates, but a softening labour market clouds this view. Showing a sudden uptick to 4.7% in the 3 months leading up to May, the ILO Unemployment Rate, which marks the highest in almost 3 years signals a decrease in economic activity that might ease the pressure of inflation within the UK in the coming months.

The British Pound took a hit following the release of the data as GBP/USD reached a point close to the lowest it had been in nearly two months with a value of 1.3370 before slightly bouncing back to settle around 1.3400 staying 0.13% below its starting point for the day. Traders seem to be leaning towards the idea that the Bank of England might decide to lower rates earlier than expected since the job market appears to be losing its momentum, which strengthens the argument for implementing policies to boost the economy despite the fact that inflation remains stubbornly high.

Away from global trade risks the direction of focus has pivoted from trump trade to relative interest rate expectations, this as the speed at which the Bank of England is acting in lowering rates compared to the more wary U.S. Federal Reserve is putting pressure on the strength of the Pound.

The Bank of England is in a tough spot dealing with both higher prices and more people out of work. In the days ahead the UK’s will be watching closely to see what the Bank decides and how the pound does on the market.