Is the U.K. labor market still stuck in a rut? Or has it finally turned a corner? The October jobs figures appear to be painting a mixed picture so let’s break down the components to figure out what’s next for the pound’s forex price action.
First, the good stuff. After falling to record lows from 5.5% to 5.4% in August, the unemployment rate improved yet again to 5.3% in September. According to the Office for National Statistics, which is the agency responsible for gathering employment data and crunching the numbers, this continues to reflect the “recent strengthening in the labor market.”
In addition, the overall employment rate, which accounts for the percentage of the working-age population who have jobs, is at 73.7% – the highest level since records began in 1971. There were 22,000 fewer economically inactive folks in Q3 compared to the previous quarter and 62,000 fewer compared to the same period a year ago.
The claimant count change for October was worse than expected, as the figure indicated a 3.3K increase in the number of folks claiming jobless benefits. This was higher than the previous month’s 0.5K gain, which means that unemployment is still gradually rising this year.
Wage growth was also absent during the three-month period spanning July to September, as the average earnings index was unchanged at 3.0% instead of showing the expected rise to 3.2%. Earnings excluding bonuses slipped from 2.8% to 2.5% in Q3, lower than the projected drop to 2.6%.
At the end of the day, the British pound had an overall bullish forex reaction to the report, as traders seemed to focus on the longer-term employment trends. The lack of wage growth doesn’t appear to be too worrisome for now, as stagnant inflation is still allowing U.K. consumers to increase their spending and take advantage of relatively low prices.
For now, it looks like the pound can hold on to its recent forex gains from here, as the U.K. economy is still faring much better compared to most of its peers. Although this isn’t probably enough to convince BOE policymakers to revert to their hawkish stance and get back on track to hiking rates early next year, market watchers don’t seem to be concerned about additional BOE stimulus either. And during these times, it seems that this is more than enough to keep a currency afloat.