Currency

UK Employment Fall To “Embolden BoE Rate Cut”

Pound Sterling: UK Employment Fall to Embolden BoE Rate Cut

There was choppy Pound trading after Tuesday’s UK jobs data, with the Pound to Euro (GBP/EUR) exchange edging higher to 1.1720 with the Pound to Dollar (GBP/USD) exchange rate little changed at 1.2435 as markets monitored risk conditions closely.

The headline UK unemployment rate increased to 4.2% in the three months to February from 3.9% previously and above consensus forecasts of 4.0%.

Payrolls were estimated to have declined 67,000 for March after an 18,000 February decline.

Headline average earnings growth held at 5.6% compared with expectations of a slight decline to 5.5% while underlying earnings edged lower to 6.0% from 6.1% and above forecasts of 5.8%.

ING noted mixed data but added that the Bank of England (BoE) will be concerned over wages growth; “While some may be focusing on the decline in employment, we think the 12% annualised month-on-month reading in private sector pay is far more consequential for the Bank of England. This is not the kind of benign wage data the BoE needs to see before it is prepared to cut rates.”

Ratio vacancies vs unemployed

Chart: Ratio vacancies vs unemployed – Courtesy of Pantheon Macroeconomics.

ING expects an August rate cut.

Rob Wood, chief UK economist at Pantheon Macroeconomics is more confident over a rate cut; “There is solid evidence the labour market slowed markedly in March. Rate setters will take note. Wages lag labour market slack, so these figures will likely embolden the Monetary Policy Committee to begin cutting interest rates this summer.”

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He expects a June BoE rate cut.

Read full ONS data release here.


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