08:27 AM EDT, 08/12/2025 (MT Newswires) -- Sterling (GBP) is continuing to trade at stronger levels following last week's hawkish Bank of England policy update, which signaled that it's less confident over the need to continue cutting rates at the current quarterly pace, said MUFG.

The United Kingdom rate market has moved to price in closer to a 50:50 probability of another 25bps rate cut being delivered in November, wrote the bank in a note to clients. The hawkish repricing of BoE rate cut expectations has helped to provide more support for sterling, resulting in EUR/GBP falling back below 0.8650 after hitting a recent high in late July of 0.8769.

Upward momentum for sterling has been encouraged further earlier Tuesday by the release of the latest U.K. labor market report, pointed out MUFG.

The bank noted that the jobs data is a bit firmer than expected. Payroll employment declined by less than expected (just 8,000 in July) and there was another upward revision to the prior month from -41,000 to -26,000. It follows on from the upward revisions in last month's report as well.

As a result, employment is still down by around 150,000 over the past year, but not nearly as alarming as suggested initially back in May. The July figure was the strongest since January, indicating that the weakness in the labor market may be starting to ease a little, although one should never place too much importance on just one report.

On the other hand, headline wage growth slowed more than expected to 4.6% down from 5.0%. The key measure for the BoE, private sector wage growth excluding bonuses, also slowed but only modestly to 4.8% down from 4.9%.

Overall, the report is unlikely to alter the current hawkish policy shift taking place on the BoE's MPC, added MUFG. The U.K. labor market would need to show evidence of even looser conditions and/or a faster slowdown in wage growth for the U.K. rate market to price back in more rate cuts.

MPC officials have indicated recently that they are becoming more concerned about inflation persistence. Higher U.K. yields for longer remain a supportive factor for sterling, although it didn't prevent recent sterling underperformance, according to MUFG.