The number of people unemployed in the UK fell by 20,000 to 1.67 million in the three months to April, the lowest since the three months to May 2008. The employment rate was unchanged at a record high of 74.2%. There were 31.59 million people in work in the three months to April – 55,000 more than the preceding three months.
The drop in the number of jobseekers pushed Britain’s unemployment rate to 5.0% in the three months to April – the lowest since August to October 2005. Expectations were for the unemployment rate to stay unchanged at 5.1%.
There were also signs of wage pressures building up in the economy as average weekly earnings also beat estimates. Total average weekly earnings growth was unchanged at 2.0% year-on-year in the three months to April. However, the figure was above forecasts that it would slow to 1.7%. Excluding bonuses, average weekly earnings accelerated to 2.3% in the three months to April from an upwardly revised 2.2% in the preceding three months. Expectations were for a reading of 2.1%.
Higher wage growth may put pressure on the Bank of England in the coming months to bring forward its rate hike projections if it continues to rise. However, such a consideration would be dependent on the outcome of the June 23 referendum when Britons will vote if they want to stay or leave the European Union. A vote to leave the EU would likely lead to a slowdown in economic growth, at least in the near term, whereas a ‘stay’ vote is expected to alleviate the current market uncertainty that is keeping investors both in the UK and elsewhere nervous.
Recent data, along with today’s jobs figures, suggest that the negative impact of the Brexit referendum on the economy may be more limited than initially anticipated. However, the claimant count of unemployment, which measures the number of UK jobseekers claiming unemployment related benefits, has been weakening in recent months and there were upward revisions to previous months’ figures in today’s report. The jobless rate according to the claimant count was unchanged at 2.2% in May, above forecasts of 2.1%. It follows an upward revision from 2.1% to 2.2% in April. This puts into question whether the positive batch of data for April will be sustained for the remainder of the second quarter.
The pound spiked up after the positive data, hitting 1.4213 dollars and 151.16 yen. But it later settled back to around 1.4195 dollars and 150.76 yen as Brexit concerns kept any gains in check. The euro meanwhile dropped to 0.7892 pounds after the release before bouncing back to 0.7910 pounds in mid-European session.
Sterling is likely to see ongoing pressure at least until the referendum date of June 23, while tomorrow’s Bank of England policy meeting and Friday’s retail sales figures will keep the British currency in focus for the rest of the week. The Bank of England is not expected to add much to last month’s quarterly outlook and Brexit warning when it releases its statement and minutes tomorrow. But it may try to reassure markets that it has enough contingency plans in place in case of a vote to leave the EU in a week’s time.
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