Sterling Falls as UK Job Market Shows Signs of Slowdown
Sterling has experienced a decline after recent data revealed a slowdown in the growth of British workers’ regular pay and a decrease in job vacancies. This softer labor market has increased the likelihood that the Bank of England (BoE) will keep interest rates unchanged.
The pound fell 0.4% against the dollar to $1.2169, approaching a one-week low reached last Friday. It also dropped 0.4% against the euro to 86.75 pence, just slightly above the nearly two-week low seen on Monday.
The latest data suggests that the labor market in the UK is losing momentum. Job vacancies have declined, and average British earnings, excluding bonuses, were 7.8% higher than the previous year during the three months leading up to August. This figure represents a slight decrease from the upwardly revised 7.9% in the three preceding months, marking the first fall since January.
Unfortunately, the publication of several labor market indicators, including the unemployment rate, has been delayed until next week.
The Bank of England is closely monitoring the labor market, particularly earnings figures, as it assesses whether a resumption of interest rate hikes is necessary. In September, the BoE decided to keep rates on hold after implementing 14 consecutive hikes.
“The pound has suffered sharp losses this morning, following the release of annual earnings data that saw wage growth outstrip inflation for the first time since October 2021,” said Joshua Mahony, chief market analyst at Scope Markets.
“Nonetheless, with the BoE undoubtedly concerned at the rise of wages over recent months, today’s decline eases concerns that we could see another rate hike in the near term.”
Analysts at Nomura believe that the weakening job data could influence the Monetary Policy Committee’s decision on interest rates. In a note to investors, Nomura stated that they expect the first rate cut to occur in the third quarter of next year. Based on the latest data, they believe that the hiking cycle is now over.
This week, another important economic release to look out for is Britain’s consumer price index (CPI), scheduled for Wednesday.
More detail via Investing.com UK here… ( Image via Investing.com UK )