UK unemployment showed signs of cooling off in June as the ILO measure of unemployment rose by 25,000 to 1.85 million in the three months to June. The unemployment rate stayed unchanged at 5.6%. Total employment fell by 63,000 over the quarter to 31.03 million, but was still higher than a year ago by 354,000 and the employment rate fell slightly to 73.4%.
An unexpected drop in the number of people claiming unemployment benefits, which is one month ahead of the ILO measure, could be an indication that the rise in the number of people unemployed in May and June is a temporary blip. The claimant count fell by 4,900 in July, against expectations that it would rise by 1,000. The claimant count rate remained unchanged at 2.3% in July.
Average earnings, excluding bonuses, showed signs of stabilizing after picking up from 1.6% at the start of the year to 2.8% in May. The rate held steady in June, in-line with forecasts. Total earnings, including bonuses, came in below estimates as it fell to 2.4% in June, against expectations that it would fall to 2.8% from May’s 5-year high of 3.2%.
The slowdown in the jobs growth and the soft average earnings figures take the pressure off from the Bank of England to rush ahead with an interest rate increase this year and to wait until the first or second quarter of 2016 before making a move. The Bank of England has been concerned that the tightening labor market and a pick-up in pay growth could soon feed through in higher prices in the high street as businesses pass on higher labor costs to the consumer.
But with little inflationary pressures elsewhere, and commodity prices showing no sign of reversing their downtrend anytime soon, the Bank of England has a tough balancing job of not choking off the slowest economic recovery the UK has seen from coming out of recession. Weak global demand and the stronger pound also weigh on inflation and the Bank of England, which recently lowered its inflation forecasts for 2015 and 2016, is likely to wait until inflation has started to rise closer to its 2% target before hiking interest rates. This puts it in a similar position as the US Federal Reserve, which has put the emphasis on data dependency to assess the strength of the economy and price pressures.
The pound dropped against major currencies after the data came out but managed to reverse half of its losses. The euro jumped to 0.7170 against the pound before easing to 0.7149 by mid-European session. Sterling also fell against the yen, touching a low of 193.42 before bouncing back to 193.90. Cable saw similar moves as it dropped to 1.5535 but later recovered to 1.5570.
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