The Night Before the Pound's Turmoil: Bailey Admits Weakness in the UK Labor Market

Signs of Partial Recovery in UK Manufacturing

The Foreign exchange dealer brokerslatest data shows that in June, UK manufacturing displayed signs of partial recovery amid a prolonged downturn. The S&P Global/CIPS Manufacturing Purchasing Managers' Index (PMI) rose for the third consecutive month to 47.7. Although still below the neutral 50 mark, the declines in output, hiring, and new orders have lessened.

However, Rob Dobson, Director of Global Market Intelligence at S&P, warns that the current stability is fragile and may be disrupted by weak demand, supply chain bottlenecks, and policy uncertainties. Additionally, companies have been raising product prices for 18 consecutive months to offset rising wages and material costs.

Bailey Acknowledges Labor Market Weakness

At the central bank meeting in Sintra, Portugal, Bank of England Governor Bailey stated that UK economic growth and investment appetite have been hit by global uncertainty, and the labor market is "softening." He noted that although prices have risen recently, the Bank of England will "very carefully" monitor the persistence of inflation and pointed out "some signs of underlying weakness, particularly in the labor market."

Bailey emphasized that businesses are delaying investment decisions due to policy uncertainty, which is interpreted by the market as a gradual start to a rate-cutting cycle by the Bank of England. Influenced by Bailey's remarks, UK short-term government bond yields hit their lowest in nearly two months, with investors expecting the Bank of England to cut interest rates to 3.75% by the end of the year.

Food Prices Drive Shop Inflation

Data from the British Retail Consortium (BRC) indicates that UK food prices in June rose 3.7% compared to the same month last year, marking the largest increase since March 2024, driving overall shop prices up for the first time in nearly a year. The BRC warns that geopolitical conflicts, wholesale costs, and wage increases may heighten price pressure in the second half of the year.

Shop prices in the UK rose 0.4% year-on-year in June, ending a previous 11-month streak of declines. Analysts believe that if consumer confidence falls within the year, rising prices could further suppress purchasing power and increase the pressure on economic recovery.

US Tariffs Impact Global Manufacturing

Data from the Institute for Supply Management (ISM) shows that the US manufacturing PMI in June slightly rose to 49.0, but remained below 50 for the fourth consecutive month, indicating ongoing weakness in manufacturing. The import tariffs pushed by Trump have caused supply chain bottlenecks, and firms are under increased pressure from rising costs and weak demand, putting global manufacturing under simultaneous strain.

Although US factory output slightly rebounded in June, this was primarily due to the processing of backlogged orders. Manufacturing employment indicators continued to decline, suggesting significant hurdles for manufacturing recovery.

Powell Stresses Patience in Waiting for Rate Cut Window

At the same central bank summit, Federal Reserve Chairman Powell stated that the Fed will "patiently wait for more data" before cutting interest rates. He reiterated that the Fed will not act hastily until the effects of tariffs on inflation are clearer but still expects rate cuts later this year.

Analysts point out that the expiration of Trump's tariff extension on July 9 and upcoming employment and inflation data from the Fed will be crucial references for whether the Fed opens a rate cut window in September.

Outlook: Global Central Banks May Shift Policy

With the UK labor market weakening, European and US manufacturing under pressure, and inflation still high, expectations of a policy shift by major global central banks are rising. The market is focused on when the Federal Reserve and the Bank of England will officially open a rate-cutting window and the ongoing impact of global trade and geopolitical risks on inflation and economic growth.

In the coming weeks, UK and US economic data and the progress of tariff negotiations may cause significant market volatility, with the trends of the pound, dollar, and global bond market facing critical junctures.

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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