GBP/USD – BoE Has Cause for Optimism in UK Jobs Report

 | Jul 11, 2023 09:44AM ET

  • UK unemployment rises to 4% in the three months to May, up from 3.8%
  • Average earnings hit 7.3% (excluding bonus) and 6.9% (including bonus)
  • Markets expect BoE to raise rates another 1.25%

    • UK jobs data this morning was a mixed bag on the face of it but a deeper dive into the numbers may give the Bank of England more cause for optimism than pessimism.

    The earnings component of the report, while continuing to partly shield households from soaring inflation, is the part the MPC will be most concerned about. Getting inflation back to 2% on a sustainable basis simply won’t happen unless that wage growth falls dramatically and instead, it’s still rising, reaching 6.9% including bonuses and 7.3% without. The revisions to the April figures will not be welcome by the BoE either.

    That said, there is plenty within this report to suggest the trend in wages will soon reverse which will give the MPC cause for optimism. Unemployment in the three months to May jumped to 4%, up 0.5% from its low nine months ago and steadily rising. There are other signs too that labour market tightness is easing, like falling vacancies to unemployment and lower inactivity as people are drawn back into the labour force due to high inflation.

    While this isn’t hampering wage growth yet, it almost certainly will as bargaining power shifts and inflation falls. Lower energy and food prices, alone, should drive inflation down considerably over the coming months and that will filter into wage numbers over time which will give the BoE some confidence that pressures will ease.

    Sterling makes small gains after initial volatility

    The pound has been quite volatile in the aftermath of the data which probably reflects the mixed nature of it. It is trading a little higher on the day still, even as yields are marginally lower.

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