- The UK Unemployment Rate unexpectedly rises to 4.0% in the three months to May.
- The Claimant Count Change for Britain arrived at 25.7K in June.
- The UK Average Earnings excluding bonuses rose 7.3% 3M YoY May vs. 7.1% expected.
The Office for National Statistics (ONS) published the latest employment data on Tuesday showing the United Kingdom’s (UK) ILO Unemployment Rate inched higher to 4.0% in the quarter to May from the 3.8% seen during the three months to April. The market forecast was 3.8% in the reported period.
The Claimant Count Change also showed a big increase. The number of people claiming jobless benefits jumped by 25.7K in June, as against the previous month’s -22.5K.
The UK’s Average Earnings, excluding bonuses, arrived at 7.3% 3Mo/YoY May versus 7.3% prior and 7.1% expected. The gauge including bonuses came in at 6.9% 3Mo/YoY through the fifth month of the year versus 6.7% previous and 6.8% expected.
Key points (via ONS)
UK vacancies 1,034,000 in three months to June.
UK LFS employment +102k 3m/3m in 3 months to May.
UK June payrolls change -9k vs. 23k prior.
UK economic inactivity rate decreased by 0.4 percentage points on the quarter to 20.8% in three months to May.
The UK Minister for Employment, Guy Opperman MP told FXStreet: " It's encouraging to see inactivity falling, vacancies dropping, and employment on the up. To get prices down and help make mortgages manageable, we must halve inflation and grow our economy. To do that we are helping those who can, into work, and we recently increased the amount someone on Universal Credit can claim back for childcare to make working that bit easier.”
“Our new Midlife MOT website is also helping everyone to future-proof their finances, whether that's looking at options for work, reviewing their skills or understanding their pensions,” the Minister added.
GBP/USD reaction
GBP/USD jumped to test 1.2900 on the mixed UK employment data. The pair is trading 0.26% higher on the day at 1.2893, as of writing.
Economic Indicator
United Kingdom Average Earnings Excluding Bonus (3Mo/Yr)
The Average Earing Excluding Bonus released by the National Statistics is a key short-term indicator of how levels of pay are changing within the UK economy. It can be seen as a measure of growth in "basic pay". Generally speaking, the positive earnings growth anticipates positive (or bullish) for the GBP, whereas a low reading is seen as negative (or bearish).
Read more.The section below was published at 3:00 GMT as the preview for the UK employment data release.
- Jobs report for the United Kingdom could significantly impact the BoE rates outlook.
- The Unemployment Rate in the UK is likely to hold steady at 3.8% in the quarter to May.
- Office for National Statistics is set to publish the UK labor market report at 06:00 GMT.
The Office for National Statistics is scheduled to publish the United Kingdom’s jobs data this Tuesday, which is expected to show a decline in the country’s Unemployment Rate in the three months to May.
The UK labor market remains very tight notwithstanding the pressure of 13 consecutive interest rate increases by the Bank of England (BoE) since late 2021 to tame inflation. In the quarter through April, ILO Unemployment Rate fell to 3.8% from the 3.9% recorded in the previous period, beating the market consensus of a 4.0% print.
Meanwhile, the number of people claiming jobless benefits dropped by 13.6K in May, compared with the expected decrease of 9.6K. The Claimant Count Change unexpectedly jumped by 23.4K (an upward revision from 46.7K) in April.
The UK’s Average Weekly Earnings, excluding bonuses, surged 7.2% 3Mo/YoY in April versus 6.8% prior. The gauge including bonuses rose 6.5% 3Mo/YoY in the fourth month of the year as against a 6.1% increase seen in March. It’s worth noting that the April data included the impact of a 9.7% rise in the minimum wage.
The real concern remains the persistent shortage of workers, which is driving up wage inflation. The number of people unemployed fell by 25,000 in the quarter through April compared with the three months through March. The BOE is concerned that the slack in the growth of workers will continue stoking inflationary pressures, through a wage-price spiral, keeping it on track to deliver more rate hikes.
What to expect in the next UK jobs report?
The UK ILO Unemployment Rate is seen steady at 3.8% in the three months through May while the economy is seen adding 150K jobs in the reported period, down from a 250K jobs growth seen previously.
The UK Average Weekly Earnings (excluding bonuses) are expected to increase 7.1% YoY through May, at a slightly slower pace than April’s 7.2% 3Mo/YoY rise. However, Average Earnings, including bonuses, are seen rising 6.8% in the reported period, up from a 6.5% growth reported through April, hitting the highest level since August 2021.
On Monday, a survey conducted by the Recruitment and Employment Confederation (REC) and accountants KPMG showed that increases in starting salaries for permanent and temporary staff were the weakest since April 2021, alleviating some of the BoE’s concerns about inflation pressure.
“The final labor market data before the August BoE decision should indicate whether domestic price pressures are becoming more persistent. Our expectation is for a slight loosening in the labor market and a marginal easing in regular pay, which should allow the Bank to downshift to 25bp,” analysts at Societe Generale noted.
When is the UK jobs report and how could it affect GBP/USD?
Jobs report for the United Kingdom is slated for release at 6:00 GMT on Tuesday, July 11. GBP/USD has taken out the 1.2850 key resistance after the US Dollar extended weakness on disappointing US Nonfarm Payrolls data and dovish signals from the Federal Reserve policymakers. It remains to be seen if the UK labor market report helps Pound Sterling find a fresh leg higher, which could initiate a meaningful upside toward the 1.3000 level.
Upbeat employment numbers and hot wage inflation data would justify the BoE’s stance of more tightening ahead, bolstering market expectations of a BoE terminal rate at 6.50%. Speaking at a conference in Aix-en-Provence in France on Sunday, Bank of England Governor, Andrew Bailey, said that "we will bring inflation back to target," and that "we do have some flexibility about how quickly we bring it back to target." Despite, the central bank’s forecasts of a significant slowdown in inflation over the past months, the UK CPI rose 8.7% in May, outpacing estimates of an 8.4% increase. The inflation rate in the country is over four times the BoE’s 2.0% target.
Conversely, the British Pound could see a sharp correction on signs of loosening UK labor market conditions, which could pour cold water on the hawkish BoE outlook. In such a scenario, GBP/USD could pull back toward 1.2700.
Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the GBP/USD pair and explains: “The currency pair is challenging the highest level in 15 months near 1.2875 heading into the UK jobs data release. The gradual ascent in the 14-day Relative Strength Index (RSI) above the midline justifies the GBP/USD advance.”
Dhwani also outlines important technical levels to trade the GBP/USD pair: “On the upside, Pound Sterling buyers now look to recapture the 1.2900 mark, above which the 1.3000 psychological barrier will be tested. Conversely, immediate support awaits at the bullish 21-Daily Moving Average (DMA) at 1.2738, below which sellers will prod the static support near 1.2680. The deeper correction will then expose the 1.2600 round figure.“
Pound Sterling FAQs
What is the Pound Sterling?
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data.
Its key trading pairs are GBP/USD, aka ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
How do the decisions of the Bank of England impact on the Pound Sterling?
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates.
When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money.
When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
How does economic data influence the value of the Pound?
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP.
A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
How does the Trade Balance impact the Pound?
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period.
If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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