The British pound strengthened against other major currencies in the European session on Tuesday, after data showed that British consumer price inflation accelerated at a faster-than-expected pace in August.
The pound slipped from a one-year high of $1.3329 in morning trade to trade 0.4 percent lower on the day at $1.3234.
The jobless figure dropped to 4.3 per cent in the quarter through to the end of July, reaching the lowest level since 1975, the Office for National Statistics said Wednesday.
But in a week when data showed United Kingdom prices rising faster and unemployment falling to a four-decade low, they said their tolerance for above-target inflation was lessening.
Inflation's summer lull ended in August as price growth spiked to 2.9 per cent following a record rise in clothing costs.
United Kingdom shares opened slightly lower on Thursday with the mining and financial sectors weighing on the FTSE .FTSE as investors waited to see how the Bank of England will react to fresh data showing a jump in inflation. It says the immediate surge in inflation above its target is due to the fall in the pound after the Brexit vote.
Andrew Wishart, economist at Capital Economics, says that while speculation over a rate hike this year looks premature, it's likely that the Bank of England will begin to normalise policy in the first half of this year.
Prudential Portfolio Management Group senior economist Leila Butt says worries about high inflation combined with spare capacity in the economy may lead to more members voting for a rate hike, but she still expects a majority of members to keep rates on hold for the remainder of the year. The monthly rate was up by 1.6%, above the 1.3% expected and the negative 0.2% observed in the previous month (downwardly revised from 0.0%).
The comments come in the wake of the Bank of England's September policy update where it warned markets were too complacent in their pricing of future interest rate rises. The unemployment rate is expected to remain unchanged, with earnings forecast for a modest bounce to 2.2% in the three months to July.
Expectations of a more hawkish message from the Bank of England - which meets this week - have been at the heart of a recent steadying of the pound, sold heavily in the aftermath of Britain's decision to quit the EU.
At the time of writing this article, the Pound Euro exchange rate trended in the region of 1.1086.