Posted on March 18, 2015 by the XM Investment Research Desk at 11:00 am GMT
There was a mixed bag of UK employment data today but the pound plummeted nevertheless to the lowest level since June 2010.
The positive side of the jobs report showed that the employment rate hit the highest on record. The Office of National Statistics said the number of Britons with jobs increased by 143,000 to 30.939 million in the three months through January. This brought up the employment rate to 73.3% which was an all-time high. The number of people claiming unemployment benefits in February fell by 31,000, slightly more than the economists’ forecasts of a fall of 30,000.
The negative side of the jobs report was that the official ILO unemployment rate remained at 5.7% although it was expected to fall by a tenth of a percent. Further bad news was that nominal wage growth disappointed.
The core regular wage growth slowed down to 1.8%, significantly lower than 2.2% expected. This was a 3-month average to January. Average earnings excluding bonuses grew at a slower pace in January at 1.6% versus 1.8% expected and slower than the previous month’s 1.7%. Including bonuses and earnings, the wage growth rose only 1.6%, which is short of the expected 1.8%. Average hourly earnings rose as expected from 2.1% to 2.2%. The Bank of England has focused more on wage growth recently in its consideration for when to start raising rates which is why markets now react more to this data. Weaker data will delay the Bank’s timing of the first rate hike.
Meanwhile another catalyst for sterling’s move lower were the Bank of England minutes which mentioned that the strength of the UK economy could push the pound higher and increase the chance that low inflation will persist.
The vote count of the Bank’s Monetary Policy Committee’s March 4-5 meeting showed all nine members thought the very weak short-term outlook for inflation warranted keeping interest rates unchanged. At the latest March 4 -5 policy meeting, the BoE left the main interest rate at a record low 0.5%.
MPC members also expressed concern that the diverging monetary policies between the Bank of England the European Central Bank would put further upward pressure on sterling.
For today, the pound weakened across the board to a near 5-year low of 1.4656 after the news reports today, from a high of 1.4764 before the news. The euro rallied versus the pound to a high of 0.7246 from 0.7174.