The latest U.K. employment situation update reveals a mixed picture, with signs of cooling in the labour market but continued wage pressures, leaving the Bank of England (BoE) in a delicate position ahead of its September 19th meeting.
Key Points:
- The UK employment rate for people aged 16-64 was estimated at 74.8% in May to July 2024, up 0.5 percentage points on the quarter but down 0.1 percentage points compared to a year ago.
- The unemployment rate was estimated at 4.1%, down 0.2 percentage points on the quarter and down 0.2 percentage points on the year.
- Economic inactivity was 21.9%, down 0.3 percentage points on the quarter but up 0.3 percentage points compared to a year earlier.
- The number of job vacancies fell by 42,000 on the quarter to 857,000 in June to August 2024. This marks the 26th consecutive quarterly fall in vacancies.
- Annual growth in employees’ average total pay was 4.0% in May to July 2024, while regular pay growth was 5.1%.
- In real terms (adjusted for inflation), total pay grew by 1.1% and regular pay by 2.2%.
- There were 42,000 working days lost due to labour disputes in July 2024, with most strikes in the health and social work sector.
Link to the September ONS Labour Market Overview
Market Reactions
British Pound vs. Major Currencies: 5-min
Overlay of GBP vs. Major Currencies Chart by TradingView
Market Reactions:
The initial market response suggests that while the data was mixed, it was perceived as marginally positive for the pound against all of the major currencies, particularly the “safe havens.” Overall, the numbers were arguably a bit more positive than the markets expected with the dip in the unemployment rate and continued elevated wage growth rate likely having the most weight on market opinions.
However, the pound topped out within two hours of the release, and the tide turned significantly, mainly the Swiss franc, and Japanese yen. This is a behavioral tendency that was pointed out in our Event Guide.
This possibly indicates some investor caution about the UK’s economic outlook, and/or that the broad risk averse sentiment seen during the Tuesday session became a heavier weight on pound sentiment.
This market reaction aligns with the analysts’ views that while the labour market is showing signs of easing, but not likely yet at a point where the Bank of England would consider immediate interest rate cuts, with the next round of easing (potentially a 25 bps cut) likely in November 2024.
