UK Jobless Claims Preview: Tenfold leap may be too modest, GBP/USD has room to fall

How hard has COVID-19 hit the British economy? Most economic statistics have either been for the pre-coronavirus era or soft data – surveys rather than evidence. And now, traders receive information labor market data – and some of it is for March when the UK started its lockdown.

The upcoming jobs report consists of hard data. Investors tend to focus on Average Hourly Earnings in the monthly jobs report. While they are of interest, the figures refer to February, when the disease was centered in Asia. Both including and excluding bonuses, yearly raises are projected to modestly decelerate from 3.1% to 3%. The Unemployment Rate carries expectations for remaining at 3.9%. 

The main dish this time is the Claimant Count Change – aka jobless claims – which are for March. The number of applications has oscillated between a drop of 40,000 and an increase of 40,000 in the long years of recovery since the Great Recession. Back in February, they increased by 17,300. 

Economists expect a leap of 172,500 in March – nearly ten times the figures in the previous month.

In the US, weekly claims jumped from somewhere above 200,000 to over 3 million and then around 6.6 million within less than a month. The UK's figures are monthly and there is another significant difference between both countries – American lawmakers focused on helping the unemployed and did little to keep people at work. In the UK, furlough schemes have been deployed. On the other hand, Britain's lockdown is stricter.

Zooming out to the financial crisis, the peak stood at 138,600 in February 2009. Contrary to a decade ago, policymakers are telling people not to work, putting the economy in an induced coma. Instead of a gradual increase in joblessness, the UK – and many other countries – are facing a shock. Spain – which shuttered its economy earlier but has a smaller population – reported a leap of 300,000 unemployment claims last month.

All in all, the expectation of 172,500 – which would exceed the worst of the previous crisis – sounds optimistic. 

GBP/USD reaction

In case the Claimant Count Change exceeds expectations and surpasses 200,000, GBP/USD could tumble down as it would show the economic situation is worse than expected. 

Any level between 150,000 to 200,000 would be considered within expectations and is still likely to weigh on the pound, as it would trigger headlines of the worst figure in years. 

Only a more restrained increase could of under 150,000 or below 100,000 would be sufficient to support sterling. 

Conclusion

The UK employment market suffered a blow in March due to the shuttering of the economy. The magnitude of the increase in jobless claims is likely understated by the consensus of economists and could deal a blow to the pound.