Pound Sterling (GBP) posted gains against the Euro (EUR) and US Dollar (USD) after stronger-than-expected UK labour-market data with lower unemployment and evidence of sticky wages growth.
The Pound to Dollar (GBP/USD) exchange rate advanced to near 1.2650 from 1.2620 while the Pound to Euro (GBP/EUR) exchange rate also strengthened to 1.1735 from 1.1715 as markets pared bets on a near-term Bank of England (BoE) move to cut interest rates.
The Office for National Statistics (ONS) reported that the UK unemployment rate declined significantly to 3.8% from 4.2% and below consensus forecasts of 4.0%.
The ONS also estimated that the number of people on payrolls increased 48,000 for January and December data was revised to show an increase of 31,000 compared with the flash decline of 24,000.
The increase in headline average earnings slowed to 5.8% in the year to December, but this was above expectations of 5.6% and the November increase was revised to 6.7% from 6.4%.
Underlying earnings growth slowed to 6.2% from a revised 6.7% previously, also slightly above market expectations of 6.0%.
There will be reservations over the data given revisions and changes to methodology.
The Bank of England, however, remains very sensitive to wages data given the implications for underlying inflation pressures in the economy.
In this context, evidence of a tight labour market will maintain an important element of caution surrounding inflation trends and will also tend to reinforce a reluctance to cut interest rates given concerns that inflation will settle above the 2% level.
Hann-Ju Ho, UK economist at Lloyds Bank suggests that the figures show nominal wage growth is aligned with BoE policy goals, but further improvement is needed.
“The UK labour market report, released earlier this morning, confirmed a further moderation in nominal wage growth. Headline pay growth slowed to 5.8% in the three months to December from an upwardly revised 6.7% and regular pay growth (excluding bonuses) fell to 6.2% from 6.7%. Other data in the report showed a fall in the unemployment rate to 3.8% from 3.9%, although the ONS acknowledged that data quality concerns have yet to be fully resolved. Overall, the latest data suggest nominal wage growth is moving in the right direction from a monetary policy perspective, but more progress is still needed.”
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