The Office for National Statistics (ONS) released the most recent employment data on Tuesday, showing that the ILO Unemployment Rate for the United Kingdom (UK) increased slightly to 4.0 per cent in the three months ending in May from the three months ending in April to 3.8 per cent. In fact, 3.8 per cent was the market prediction for the time period under report.
A significant increase was also seen in the Claimant Count Change. When compared to the previous month’s -22.5K, the number of people requesting unemployment benefits increased by 25.7K in June.
Average Earnings in the UK, excluding incentives, were 7.3 per cent 3Mo/YoY in May as opposed to 7.3 per cent in the previous month and 7.1 per cent anticipated. In comparison to 6.7 per cent the month before and 6.8 per cent projected, the gauge, which includes bonuses, came in at 6.9 per cent 3Mo/YoY through the fifth month of the year.
It’s encouraging to see unemployment decreasing, job openings decreasing, and employment on the rise, the UK’s Minister for Employment, Guy Opperman, MP, told FXStreet. We must develop our economy and cut inflation in half in order to lower prices and make mortgage payments more bearable. To do this, we support those who can get jobs and recently increased the amount that Universal Credit recipients can claim back for childcare expenses to make working a little bit simpler.
The Minister said, “Everyone is also being helped to future-proof their finances by our new Midlife MOT website, whether that’s looking at options for work, reviewing their skills, or understanding their pensions.”
GBP/USD response
The mixed UK employment figures caused the GBP/USD to soar to a test of 1.2900. As of this writing, the pair is trading 0.26 per cent higher than it was yesterday at 1.2893.
This Tuesday, the Office for National Statistics will release the UK’s employment statistics, which are anticipated to indicate a decrease in the nation’s unemployment rate in the three months leading up to May.
Despite the Bank of England’s (BoE) pressure to contain inflation with 13 straight interest rate rises since late 2021, the UK labour market remains extremely tight. The ILO Unemployment Rate decreased from 3.9 per cent to 3.8 per cent in the three months that ended in April, exceeding the market expectation of a 4.0 per cent print.
In contrast, fewer persons received unemployment benefits in May (13.6K fewer than predicted; 9.6K fewer). Unexpectedly, the Claimant Count Change increased by 23.4K (up from 46.7K in April).
Average Weekly Earnings in the UK, excluding bonuses, increased 7.2 per cent 3Mo/YoY in April compared to 6.8 per cent the previous month. In contrast to the 6.1 per cent growth witnessed in March, the gauge including incentives increased by 6.5 per cent 3Mo/YoY in the fourth month of the year. It’s important to note that the numbers for April took into account the effects of a 9.7 per cent increase in the minimum wage.
The actual issue continues to be the ongoing labour shortage, which is causing wage inflation to increase. When compared to the three months ending in March, the number of unemployed people decreased by 25,000 in the quarter ending in April. The BOE is worried that the slow pace of workforce growth would keep fueling inflationary pressures through a spiralling wage-price relationship, keeping it on track to continue raising interest rates.
What will the upcoming UK employment report contain?
The UK ILO unemployment rate was unchanged at 3.8 per cent in the three months that ended in May, while the economy added 150K jobs during the period under report, down from the previous quarter’s 250K job creation.
Compared to April’s 7.2 per cent 3Mo/YoY increase, the UK Average Weekly Earnings (excluding bonuses) are predicted to rise 7.1 per cent YoY through May. The average earnings, which include bonuses, are projected to climb by 6.8 per cent in the reported period, up from the 6.5 per cent growth that was reported through April, and reach their highest level since August 2021.
“The final labour market data before the Bank of England’s August decision should show whether domestic price pressures are becoming more persistent.” “Our expectation is for a slight loosening in the labour market and a marginal easing in regular pay, allowing the Bank to downshift to 25bp,” Societe Generale analysts wrote.
When will the UK jobs report be released, and how will it affect the GBP/USD?
The UK jobs report is set to be released on Tuesday, July 11 at 6:00 GMT. After poor US Nonfarm Payrolls data and dovish messages from Federal Reserve policymakers, the GBP/USD pair has wiped out the important support level of 1.2850. It remains to be seen whether the UK labour market report helps the Pound Sterling find a new leg higher, which might spark a significant rally towards the 1.3000 level.
Positive employment data and hot wage inflation data would explain the Bank of England’s attitude of more tightening in the future, bolstering market estimates of a BoE terminal rate of 6.50 per cent. Andrew Bailey, Governor of the Bank of England, stated on Sunday at a conference in Aix-en-Provence, France, 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 recent expectations of a major fall in inflation, the UK CPI jumped 8.7 per cent in May, exceeding estimates of an 8.4 per cent increase. The country’s inflation rate is more than four times the BoE’s 2.0 per cent target.
In contrast, the British Pound might experience a strong fall as evidence of easing UK labour market conditions emerge, casting doubt on the BoE’s hawkish view. In this case, GBP/USD might fall back towards 1.2700.
Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, provides a quick technical view for the GBP/USD pair, stating: “The currency pair is challenging the highest level in 15 months near 1.2875 as we approach the UK jobs data release.” The steady rise in the 14-day Relative Strength Index (RSI) above the midpoint justifies the GBP/USD rise.”
“On the upside, Pound Sterling buyers now look to recapture the 1.2900 mark, above which the 1.3000 psychological barrier will be tested,” Dhwani said of the GBP/USD pair. In contrast, sellers will probe the static support near 1.2680 if the bullish 21-Daily Moving Average (DMA) at 1.2738 is breached. The deeper correction will then provide the round value of 1.2600.”