UK Wage Growth and Unemployment Declines; GBP Rallies
Ahead of today’s European cash open, the Office for National Statistics released the June employment data for the UK.
Unemployment meaningfully declined to 4.2% between April and June 2024, easing from 4.4% between March and May (the highest rate since September 2021) and lower than the 4.5% market consensus. However, June’s employment claimant count surged to 135,000 from 32,000, the fourth highest on record.
Given the past survey issues with the unemployment numbers (declining response rates), the main takeaway from this report was the wage data, which is moving in the right direction as far as the Bank of England (BoE) is concerned. Pay, including bonuses, fell to 4.5% in June (3MYY), down from 5.7% in May and softer than the market consensus of 4.6%. Pay excluding bonuses eased to 5.4% (as expected) from the upwardly revised 5.8% reading for the same period.
BoE Unlikely to Cut Rates In September
While pay growth is on the correct path, pay that excludes bonuses remains north of 5.0% and is an ongoing issue; Alongside elevated services inflation, this is unlikely to tempt the BoE to cut rates at the September meeting. The BoE August meeting saw the central bank reduce the Bank Rate by 25 basis points to 5.0% for the first time in four years. Of relevance, the BoE Governor Andrew Bailey communicated that the rate cut does not imply the beginning of rapid easing, and today’s data is unlikely to change things much.
A slight hawkish repricing was seen today; investors forecast around a 70% probability that the central bank will leave the Bank Rate unchanged in September. Sterling (GBP) advanced versus its G10 peers and, aside from procyclical currencies, continued outperforming during the early European session.
Technically, a GBP rally should not be surprising. Price action on the monthly chart recently ventured above resistance at US$1.2715 and retested the breached barrier as support; the Relative Strength Index (RSI) also remains above the 50.00 centreline (positive momentum). Resistance is visible on the daily timeframe between US$1.2817 and US$1.2795, although in light of yesterday’s response failing to trigger much follow-through downside today, this area echoes a vulnerable tone. If breached, this opens the door to another layer of resistance coming in at US$1.2890.
Inflation Ahead
The UK Consumer Price Index (CPI) inflation data is out tomorrow at 6:00 am GMT and will be widely watched. On the headline level, inflation is expected to increase to +2.3% in July (YoY) from June’s print of +2.0%, with a current estimate range between +2.7% and +2.0%. Excluding food, energy, alcohol, and tobacco, core inflation is forecast to cool to +3.4% in July (YoY) from +3.5% in June; the estimate range is currently between +3.5% and +3.2%. Services inflation will also be closely watched, as alongside wage pressures, this remains another ongoing problem for the BoE. Services inflation is expected to slow to +5.5% (YoY) for July from +5.7% in June, with the current estimate range between +5.6% and +5.3%.
Unemployment meaningfully declined to 4.2% between April and June 2024, easing from 4.4% between March and May (the highest rate since September 2021) and lower than the 4.5% market consensus. However, June’s employment claimant count surged to 135,000 from 32,000, the fourth highest on record.
Given the past survey issues with the unemployment numbers (declining response rates), the main takeaway from this report was the wage data, which is moving in the right direction as far as the Bank of England (BoE) is concerned. Pay, including bonuses, fell to 4.5% in June (3MYY), down from 5.7% in May and softer than the market consensus of 4.6%. Pay excluding bonuses eased to 5.4% (as expected) from the upwardly revised 5.8% reading for the same period.
BoE Unlikely to Cut Rates In September
While pay growth is on the correct path, pay that excludes bonuses remains north of 5.0% and is an ongoing issue; Alongside elevated services inflation, this is unlikely to tempt the BoE to cut rates at the September meeting. The BoE August meeting saw the central bank reduce the Bank Rate by 25 basis points to 5.0% for the first time in four years. Of relevance, the BoE Governor Andrew Bailey communicated that the rate cut does not imply the beginning of rapid easing, and today’s data is unlikely to change things much.
A slight hawkish repricing was seen today; investors forecast around a 70% probability that the central bank will leave the Bank Rate unchanged in September. Sterling (GBP) advanced versus its G10 peers and, aside from procyclical currencies, continued outperforming during the early European session.
Technically, a GBP rally should not be surprising. Price action on the monthly chart recently ventured above resistance at US$1.2715 and retested the breached barrier as support; the Relative Strength Index (RSI) also remains above the 50.00 centreline (positive momentum). Resistance is visible on the daily timeframe between US$1.2817 and US$1.2795, although in light of yesterday’s response failing to trigger much follow-through downside today, this area echoes a vulnerable tone. If breached, this opens the door to another layer of resistance coming in at US$1.2890.
Inflation Ahead
The UK Consumer Price Index (CPI) inflation data is out tomorrow at 6:00 am GMT and will be widely watched. On the headline level, inflation is expected to increase to +2.3% in July (YoY) from June’s print of +2.0%, with a current estimate range between +2.7% and +2.0%. Excluding food, energy, alcohol, and tobacco, core inflation is forecast to cool to +3.4% in July (YoY) from +3.5% in June; the estimate range is currently between +3.5% and +3.2%. Services inflation will also be closely watched, as alongside wage pressures, this remains another ongoing problem for the BoE. Services inflation is expected to slow to +5.5% (YoY) for July from +5.7% in June, with the current estimate range between +5.6% and +5.3%.
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