Breaking News: GBP/USD Bounces As UK Unemployment Rate Holds Firm
Breaking News: GBP/USD Bounces as UK Unemployment Rate Holds Firm
The pound continued to trade higher in the early European session today, jumping from 1.2341 to 1.5341, with traders anticipating strong wage growth figures and a drop in unemployment claims. The pound also benefited from stronger-than-expected Average Earnings Index figures, which showed a 3.0% gain in September, beating the expected 2.4%.

Wage Growth Still A Headline Focus For The Bank Of England
The Bank of England has cited the UK labour market as an area where it needs to continue to raise interest rates, especially given high inflation. As such, it will monitor the UK’s decision maker panel (a survey of business) closely in March and will be looking at forward-looking gauges on potential wage and price pressures to determine if further interest rate hikes are necessary.

‘Tightness’ in the UK labour market is driving wage growth
The UK’s economy was estimated to have grown by 0.3% in the fourth quarter of 2022, according to data from the Office of National Statistics. This compares with the Bank of England’s forecast that the economy would grow by 0.2% in the same period.

Despite the slowdown in GDP, it is important to note that the UK is expected to avoid recession in 2022, largely because of strong government spending and fiscal policies. However, it remains to be seen if these efforts will be enough to sustain the UK’s economic growth in the long term.

Ahead of tomorrow’s UK GDP release, the pound continues to trade on the back of strong wage growth, which will be watched closely by the Bank of England. This is largely due to ongoing ‘tightness’ in the labour market, which is driving wage growth higher at a faster pace than is typically seen outside of the Covid pandemic period.

This is encouraging news for the pound, as it is likely to increase the pressure on the Bank of England to keep raising interest rates and combat inflationary pressures. In turn, this will mean a stronger Pound against the US Dollar, which will be supportive of GBP/USD.

‘Tightness’ In The British Labour Market Drives Wage Growth
As previously mentioned, strong UK wage growth is a key headline focus for the Bank of England, as it is a key driver of inflation. As such, the Bank of England will monitor wage dynamics closely in March and will be looking at forward-looking figures on potential wage and price pressures to determine whether further interest rate hikes are necessary.

A strong rise in the UK’s wages was backed by an impressive increase in employment figures, which saw 74K people added to the UK’s labour force in the three months to December, exceeding expectations of 40K. This was also accompanied by an annual rate of pay rises that outpaced those anticipated, as the average hourly earnings rose by 3.0% in December, up from 2.2% in November. This is the fastest pace of UK pay growth since August 2009 and well above economists’ expectations for a 6.5% annual rise.