Later on this morning the latest UK Unemployment figures are expected to show a slight increase in the number of people with jobs in Britain. If the labour market data comes in stronger-than-expected then it will likely put further pressure on UK government borrowing costs – 10-year Gilt yields recently struck a 2-year high above the 3.0% mark as markets speculated over a possible rate increase before 2016 – and therefore increase demand for the Pound Sterling.
The headline Unemployment Rate is forecast to remain at 7.8%, whilst the Employment Change indicator is expected to show an addition of 55,000 jobs in the UK economy – slightly worse than the previous total of 69,000.
In terms of Jobless Claims, a -21,000 decline is predicted, which would bring the number of people on jobseekers benefits down to a 26-month low of 2.4 million. However, Average Weekly Earnings are still expected to remain well below inflation at 1.3% – the Consumer Price Index inflation indicator is currently running at 2.8%.
Overall, market forecasts point towards a rather neutral bias for the Pound, but any unexpected upticks should prove bullish for the UK currency.
Indeed, a separate labour market survey, conducted by global recruiter the ManpowerGroup, shows that 2013 could be a “game-changing year” for the British jobs market. The report, which encompasses over 2,100 employers from across the country, indicates that 6% of companies expect to hire before the end of the year – up from 5% three months ago.
Bank of England Governor Mark Carney’s forward guidance policy stipulates that interest rates will remain at the current all-time record low of 0.50% until the Unemployment Rate falls to 7.0% – the equivalent of adding 750,000 new jobs to the British economy. However, the BoE issued a set of caveats that could “knockout” the Unemployment Rate threshold if inflation persists above the Bank’s 2.0% for 18-months or if other economic conditions warrant an earlier-than-expected rise in rates.
Many investors feel that, although the labour market is unlikely to improve by 750,000 in the next two years, the BoE will be forced to introduce a rate hike before the end of 2015 if the recent uptick in UK data releases continues. With British data coming in extremely positively, it is probable that CPI inflation will remain sticky above the Bank’s desired rate; this could persuade Governor Carney and co. to raise rates sooner-rather-than-later.
All this speculation of future rate hikes in the UK has led to a bout of relative strength for the Pound against its major currency rivals. During the past few weeks Sterling has strengthened to a 7.5-month high versus the Euro, a 2.5-month high versus the US Dollar, a 3-year high against the Australian Dollar, a 3-year high against the Canadian Dollar and a 1-year high against the New Zealand Dollar.
Comments are closed.