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    Pound firms after better-than-expected jobless data

    The number of people out of work in the UK fell by 60,000  to 1.69 million in the three months to December as labor market conditions continued to improve even as economic growth moderated during 2015. The LFS measure of the unemployment rate was unchanged at a 10-year low of 5.1%, which was short of expectations of a drop to 5.0% in the final three months of last year.

    The claimant count, which measures the number of people eligible for claiming unemployment benefits was down more sharply though, declining by 14.8k in January to give a rate of 2.2% versus estimates of a 2.3% rate. Meanwhile, the UK employment rate rose to another record, with the proportion of people aged between 16 and 64 that are in work increasing to 74.1% in the three months to December.

    Pay growth remained muted at the end of last year, with little sign of wage pressures building up as the unemployment rate continues to decline. Average weekly earnings in the three months December eased to 1.9% year-on-year from 2.0% previously, in line with estimates. Excluding bonuses, earnings were slightly stronger than expected at 2.0% year-on-year. This was an increase on November’s 1.9% rate and above forecasts of 1.8%.

    Slow wage growth and low inflation has allowed the Bank of England to delay a much anticipated rate hike to the end of 2016 at the earliest. Low productivity since the end of the financial crisis and a large influx of European migrants to the UK have kept off the pressure for employers to raise wages. But a new concern now is reduced inflation expectations from a prolonged period of low inflation feeding through to earnings.

    The renewed outlook for UK earnings growth and inflation, along with the uncertainty in global financial markets, have been the main factors driving sterling down in recent months. The possibility of a UK exit from the European Union is another major risk currently pressuring the pound. Sterling hit a near 7-year low of 1.4079 dollars in January as traders pushed back their expectations of a UK rate hike.

    However, sterling rose today after the latest jobs data. The slightly better-than-expected figures helped the British currency recover from the 2-week lows set earlier in the day as “Brexit” fears mount. The pound could face further sell-offs as traders remain nervous ahead of this week’s EU summit where the UK prime minister will try to clinch a deal for renegotiated terms of the UK’s membership in the European Union. The pound was last up at 1.4360 dollars and 163.65 yen, while the euro edged down to 0.7767 pounds.

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