Pound Sterling Weakens as UK Unemployment Rises to Five-Year High

The Pound Sterling (GBP) experienced a decline against both the Euro (EUR) and the US Dollar (USD) on February 17, 2026, following the release of UK labour market data indicating a rise in unemployment. The figures have reinforced expectations that the Bank of England (BoE) may begin cutting interest rates as early as March.

UK Unemployment Rate Climbs

The unemployment rate in the UK rose to 5.2% in the three months to December, marking the highest level in five years. This figure slightly exceeded forecasts and adds to concerns about the health of the UK economy.

Wage Growth Slows

Alongside the increase in unemployment, regular private sector wage growth slowed to 3.4% year-on-year. This cooling in wage growth suggests easing inflationary pressure, providing the BoE with more flexibility to consider loosening monetary policy.

Currency Movements

As of February 17, 2026, the exchange rates were as follows:

• GBP/EUR: 1.14465 (-0.46%)
• GBP/USD: 1.35602 (-0.5%)
• EUR/USD: 1.18465 (-0.04%)

Expert Analysis and Potential BoE Response

Pantheon Macroeconomics suggests the jump in unemployment is significant enough to “seal” a March interest rate cut, particularly given the Monetary Policy Committee’s recent emphasis on labour market slack. However, economists also caution that the deterioration may be overstated due to survey changes. Payroll data indicates some stabilization, with a fall of only 11,000 in January and revisions to previous months.

Lloyds Bank also believes the rise in unemployment and softer wage growth support a rate cut next month, although shorter-term wage momentum remains firm.

EUR/GBP Trends

The EUR/GBP cross is currently holding positive ground near 0.8685. The Pound Sterling has softened against the Euro following the UK employment data release.

Looking Ahead

Traders are now closely monitoring the upcoming UK Consumer Price Index (CPI) inflation data for December, due to be released on Wednesday, February 19, 2026. This report could provide further insights into the BoE’s monetary policy outlook. The European Central Bank (ECB) has signaled a steady rate path, which could provide some support to the Euro in the near term.