UK Unemployment Rate Rises to 4.3% But Wage Growth Accelerates to 5.7%

Labor Market Overview, UK – May 2024

The UK Labor Market Overview Report warranted investor attention on Tuesday (May 14). A hotter-than-expected UK economy fueled investor speculation about a June Bank of England rate cut.

Labor market data for March could influence the BoE rate path. The BoE’s decision on a June interest rate cut will be data-dependent.

Average earnings (inc. bonus) increased by 5.7% in the three months to March, year-over-year (3M/Yr). Economists forecast average earnings (inc. bonus) to rise by 5.3%. In February, average earnings (inc. bonus) advanced by 5.6% (3M/Yr).

The unemployment rate rose from 4.2% to 4.3% as employment declined by 177k after a 156k fall in February. Economists forecast employment to slide by 215k and a 4.3% unemployment rate.

According to the Office for National Statistics,

• The UK Claimant Count for April increased by 8,900 and by 29,300 on the year.
• Job vacancies fell by 26,000 from February 2024 to April 2024. Nevertheless, vacancies remained above pre-COVID-19 levels.

Bank of England Monetary Policy Implications

The wage growth figures for March could impact investor expectations of a June Bank of England interest rate cut.

Higher wage growth could fuel consumer spending and demand-driven inflation. Upward trends in consumer spending and prices could delay a BoE rate cut. However, a weaker labor market could signal softer wage growth. Softer wage growth could reduce disposable income and curb consumer spending.

Following the Q1 GDP numbers, the labor market data sent mixed signals vis-à-vis near-term consumer price trends.

The Bank of England left interest rates unchanged at 5.25% on May 9, with inflation remaining the focal point.

GBP/USD Response to the UK Labor Market Data

Before the UK labor market report, the GBP/USD rose to a high of $1.25622 before falling to a low of $1.25518.

However, the GBP/USD reacted to the labor market data, sliding to a low of $1.25468 before climbing to a high of $1.25618.

On Tuesday (May 14), the GBP/USD was down 0.01% to $1.25581.

Up Next

Later today, the Bank of England, US producer prices, and Fed Chair Powell will be in focus.

Bank of England Chief Economist Huw Pill will give opening remarks at the Institute of Chartered Accountants in England and Wales Regions Economic Summit. Views on the UK economy, inflation, and the timing of a BoE interest rate cut need consideration.

Economists forecast US producer prices to increase 2.2% year-on-year in April after rising 2.1% in March. Hotter-than-expected producer prices will likely affect investor expectations of a September Fed rate cut.

However, Fed Chair Powell’s views on inflation and the timing of a Fed interest rate cut will attract investor attention.