UK Economy Sees Mixed Signals: Pound Rises Amid Employment Decline

The British pound rose to two-month highs as consumer spending exceeded expectations in January. However, British companies cut staff significantly, with employment rates lowest since November 2020. Despite strong wage growth and consumer inflation, future interest rate cuts are limited due to sluggish economic growth.

The British pound reached a two-month peak on Friday, buoyed by stronger-than-expected consumer spending in January. However, UK companies are swiftly reducing their workforce, influenced by rising employer taxes introduced in Finance Minister Rachel Reeves' budget.

The UK S&P Composite Purchasing Managers' Index (PMI) slightly decreased in February, hovering just above the threshold dividing growth from recession. A notably steep decline in employment figures has taken the rate to its lowest since November 2020, outside the COVID pandemic era.

Sterling saw a modest gain, while the euro slipped against the pound. UK wage growth remains robust, though economic growth is tepid and inflation pressures loom. Traders foresee limited Bank of England rate cuts this year due to the sluggish growth forecast.

(With inputs from agencies.)