Things have gone from bad to worse for the UK economy this week
Things have gone from bad to worse for the UK economy this week. The June inflation numbers made for grim reading on Wednesday, with consumer prices rising at their fastest pace since January 2024. At the same time, jobs market conditions are deteriorating at a breakneck speed. Unemployment is now at its highest level outside of the pandemic since January 2017, jobless benefit claims are up (+26K), wage growth is slowing (5%) and vacancies have slumped to their lowest levels in a decade, again once excluding the COVID period.
The only sliver of solace is that the May payroll number was revised up (from -109k to -25k), yet with another 41k net jobs shed in June, and with the number of payrolled employees contracting in seven of the eight months since October’s much maligned budget, the situation appears rather dire.
This week’s data puts the Bank of England in an extremely tough spot. While we think that the fragile state of the labour market and the economy will be enough to justify and August cut (this is still around 80% priced in by markets), the vote on rates is unlikely to be unanimous. The path for rates beyond then is also unclear given the latest jump in price pressures.
High inflation presents a double-edged sword for sterling, as while it may delay the pace of BoE rate cuts, it is also eating into household disposable incomes. Investors don’t particularly know what to make of the news, and the pound is subsequently trading roughly flat on the euro in the past week.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
