UK unemployment steady at 4.4%, wage growth remains elevated

As expected, UK unemployment remained at 4.4% from March to May 2024, its highest rate since September 2021 and points to a softening jobs market. Following the release, Sterling (GBP) was modestly lower against major peers.

In another sign of a softening jobs market, UK vacancies fell to 889,000 in May, down from 905,000 in April. Interestingly, this is the first time since May 2021 that vacancies have ventured south of 900,000.

Employment change between March and May rose by 19,000, up from April’s fall of 140,000.

Wage growth slows

Wage growth in the UK, however, remains elevated and a problem for those at the Bank of England (BoE), who have left the Bank Rate on hold for seven consecutive meetings at 5.25% (a 16-year high). According to the latest Office for National Statistics (ONS) release, wage growth slowed from March to May, which is in line with market estimates. Pay that excludes bonuses rose +5.7%, down from +6.0% in February to April, while pay including bonuses also slowed to +5.7% compared to April’s reading of +5.9%.

Economic picture

The March-to-May drop in earnings is not likely enough to counterbalance persistent price pressures in the services sector.

Following yesterday’s CPI (Consumer Price Index) inflation data holding steady at the BoE’s inflation target of +2.0% (markets expected +1.9%) and services inflation remaining sticky at +5.7% in June (year on year) and above the central bank’s forecast, this witnessed swaps traders pare back bets of a BoE rate cut for 1 August.

The above, coupled with real GDP growth coming in broadly stronger between April and May (economic activity expanded by +0.4%, bettering Bloomberg’s median estimate of +0.2% and up from a month of no growth in April), and recent commentary from key BoE officials regarding ‘uncomfortable strength’ in services inflation and wage growth, swaps traders are now pricing in a 60% chance that the BoE remains on hold at the August meeting.

You will recall that the June MPC (Monetary Policy Committee) meeting was a finely balanced decision, with a line drawn between some officials demanding more evidence of slowing inflationary pressures and those preparing to vote for a cut.

UK Retail Sales ahead

Tomorrow will welcome the latest Gfk consumer confidence print for July and UK retail sales data for June at 12:01 am GMT and 6:00 am GMT, respectively.

Retail sales are expected to have fallen to -0.4% between May and June, down from +2.9%, while the Gfk consumer confidence index is anticipated to have improved to -12 in July from -14 (June).

Longer-term technical picture for GBP/USD

From a longer-term technical perspective on the monthly chart, the GBP/USD shows signs of an early uptrend. The series of higher highs and higher lows formed following the September 2022 low of $1.0539 – numbered 1-4 – and the unit consuming liquidity from resistance at $1.2715 (now marked support) unmasks room to continue pursuing higher terrain until reaching resistance from $1.3111, followed by another resistance at $1.3517.