UK Employment Data Mixed as Unemployment Rises, GBP/USD Slides

UK JOBS DATA KEY POINTS:

• UK Employment Change (FEB) Actual 182k Vs Forecast 160k.
• UK Unemployment Rate (MAR) Actual 3.9% Vs Forecast 3.8%.
• Average Earnings incl. Bonus (3Mo/Yr) (MAR) Actual 5.8% Vs Forecast 5.8%.
• In Real Terms (adjusted for inflation) Wages Dropped by 3% for Total Pay and by 2.0% for Regular Pay.
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The latest labor market data out from the UK came in mixed as we had both signs of resilience and early signs of colling as the number of people working in the UK grew by 182k (3-month period to end of March 23) above the forecasted figure of 160k. The increase was largely driven by part-time employees and self-employed workers.

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The unemployment rate increased 0.1% on the quarter to 3.9% which was largely attributable to people unemployed for over 12 months. This is the highest level since the November 2021 to January 2022 period. February to April 2023, the estimated number of vacancies fell by 55,000 on the quarter to 1,083,000. Vacancies fell on the quarter for the 10th consecutive period and reflect uncertainty across industries, as survey respondents continue to cite economic pressures as a factor in holding back on recruitment. The report by the ONS went further stating that the UK lost 556,000 working days to strikes in March.

Average Earnings Incl. Bonus in the UK came in at 5.8% and in line with estimates. Meanwhile average growth for the public sector came in at 5.6% in January to March 2023, such growth for the public sector was last seen in August to October 2003 (5.7%).

Source: Office for National Statistics

UK OUTLOOK MOVING FORWARD

Looking we have had a bunch of high impact UK data over the past two weeks which have painted a rather mixed picture of the economy. Inflation remains uncomfortably high while the recently revised growth forecast from the BoE has seen some upward revisions made. However, this week’s GDP growth data showed an intriguing slowdown and contraction in GDP growth for the month of February and March respectively.

There is no denying the UK economy has remained resilience for the large part, however the recent GDP data may be cause for concern. We have seen retail sales also dip of late, a sign that that consumers continue to tighten their belts as cost of living continues to be an issue. I for one will be keeping a close eye on GDP data as it starts filtering through in Q2 and of course UK inflation.

The Bank of England (BoE) did leave the door open to further interest rate hikes. Another hike is possible but given the banks own inflation expectations it might be time for a wait and see approach. As the effects of the recent hiking cycle begin to take hold Central banks will want to ensure that overtightening does not become prevalent across the globe with the BoE no exception.

MARKET REACTION

The initial market reaction following the news has seen GBPUSD decline around 50 pips, which is surprising given the recovery we saw yesterday. The strength of the slide post data release has also been helped by a slightly stronger USD this morning.

However, GBPUSD on a daily timeframe is attempting to break below the ascending channel which could open up a deeper retracement toward the support areas provided by the 50 and 100-day MAs at 1.2380 and 1.2260 respectively. Keep a close eye on developments around the US debt ceiling as that could have a significant bearing on the USD and thus GBPUSD.

GBPUSD Daily Chart, May 16, 2023

Source: TradingView, prepared by Zain Vawda

— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda