UK Unemployment Ticks Higher as Total Earnings Remains Sticky, GBP/USD Slides

UK JOBS DATA KEY POINTS:

• UK Employment Change(June) Actual -207k Vs Forecast -185k.
• UK Unemployment Rate(July) Actual 4.3% Vs Forecast 4.3%.
• Average Earnings incl. Bonus (3Mo/Yr)(July) Actual 8.5% Vs Forecast 8.2%.
• In Real Terms (adjusted for inflation) Total Pay Rose on the Year by 1.2% and for Regular Pay Rose on the Year by 0.6%.
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The latest data out from the UK is an interesting one to say the least and promises to add a further headache for the BoE. The UK employment rate was estimated at 75.5% in May to July 2023, 0.5 percentage points lower than February to April 2023. The quarterly decrease in employment was mainly driven by full-time self-employed workers.

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The unemployment rate increased to 4.3% on the quarter and in line with the forecasted figure. The number of unemployed people increased by 159 thousand to 1.46 million, largely driven by individuals unemployed for up to 12 months. According to UK ONS data,In August 2023, 0 fewer people were in pay-rolled employment when compared with July 2023.

Annual growth in regular pay (excluding bonuses) was 7.8% in May to July 2023, the same as the previous 3-month period and is the highest regular annual growth rate since comparable records began in 2001. Annual growth in employees’ average total pay (including bonuses) was 8.5%; this total annual growth rate is affected by the NHS and Civil Service one-off payments made in June and July 2023. In real terms (adjusted for inflation using Consumer Prices Index including owner occupier’s housing costs (CPIH)), annual growth for total pay rose on the year by 1.2% and for regular pay rose on the year by 0.6%.

Source: Office for National Statistics

UK OUTLOOK MOVING FORWARD

Looking ahead and the GDP data out of the UK showed promising signs once more. The Bank of England have remained firm in their belief that inflation will trickle down in Q3 and Q4 of 2023 with the most recent print showing a significant drop-off. However, yesterday comments from Chancellor Hunt seemed to suggest that the challenge is turning out to be a lot tougher than expected.

There is no denying the UK economy has remained resilient for the large part, however today’s data will add to the Bank of England’s (BoE) conundrum. As the jobless rate continues to tick higher earnings remain stubborn and something that has been a growing concern for the BoE as it looks to rein in inflation. It is key to note that the earnings figure may be slightly distorted by the NHS and Civil Service one-off payments made in June and July 2023.

The Bank of England face an unenviable task, but I do not see how the Central Bank can pause if earnings continue to accelerate. This is likely to keep inflation elevated even if it does show signs of retreat, the Central Banks target will likely require the BoE to make some progress on the earnings front.

MARKET REACTION

The initial market reaction following the news has seen GBPUSD bounce around 30-pips from the key support area around the 1.2500 mark, this however proved to be short lived.

GBPUSD did close yesterday above the 1.2500 mark following a bullish engulfing candlestick pattern on the daily timeframe which would hint at further upside. A push higher could bring the resistance level around the 1.2565 area into focus before a potential test of the 100-day MA. The upside does appear more appealing as the Dollar has had a lackluster start to the week. Given the US data ahead tomorrow and Thursday, this could be a deciding factor on whether GBPUSD can build on yesterday’s bullish momentum.

A push below the 1.2500 handle has to deal with the 200-day MA resting around the 1.2433 mark if a push lower is to gain any traction.

GBPUSD Daily Chart, September 12, 2023

Source: TradingView, prepared by Zain Vawda

Taking a quick look at the IG Client Sentiment, Retail Traders are Overwhelmingly Long on GBPUSD with 63% of retail traders currently LONG on GBPUSD. Given the Contrarian View to Crowd Sentiment Adopted Here at DailyFX, is this a sign that Cable may continue its fall?

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— Written by Zain Vawda for DailyFX.com

Contact and follow Zain on Twitter: @zvawda