UK average earnings, claimant count, and jobless rate

Jarratt Davis

Special Consultant to the FPA
Today's release of UK Employment data (9:30am GMT)has the potential to cause volatility in the pound especially if all three employment parameters - UK average earnings, claimant count, and jobless rate - come in with deviations in the same direction. The important figure is UK average earnings. Positive deviations will see strength in pound however this may be short-lived due to the overarching issue of inflation. Conversely, a negative deviation will likely see GBP fall throughout the session. The risk is to the downside with the recent dovish BOE, and downgrades to both inflation and growth. Negative labor prints will likely see significant pressure put on the GBP adding to its recent weakness, and increase expectations of the BOE continuing to maintain current policy into 2017.

The headline number measures the change in the number of people claiming unemployment benefits during the previous month. The way the UK Office for National Statistics measures employment data is different from most other countries; rather than showing how many jobs were gained, the release shows the change in unemployment. A negative figure means that people left unemployment, presumably to join the workforce. The lower the figure (higher absolute number in the negative), the better for the UK economy.

The unemployment rate measures the percentage of total work force that is unemployed and actively seeking employment during the past 3 months. The International Labor Organization's measure of unemployment, excludes jobseekers that did any work during the month and covers those people who are looking for work and are available for work. The ILO unemployment rate is the number of people who are ILO unemployed as a proportion of the resident economically active population of the area concerned.

Average Weekly Earnings is expressed as a 3-month average compared to the same period a year prior, and shows the percentage change in average wages. This represents wage inflation. The unemployment rate measures the percentage of total work force that is unemployed and actively seeking employment during the previous month. Although it's generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labour market conditions. The combination of importance and earliness means this data has the potential to cause large market moves. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity.

The GBP is currently a weak bullish currency in our opinion. While the BOE is still actively looking to begin policy normalization, however low inflation is making that move increasingly more difficult. On November 5 the BOE announced no changes to either bank rate or QE at its policy meeting, as was expected. The voting pattern also remained unchanged at 1-8, with Ian McCafferty once again calling for an immediate 25 bp hike. The BOE was also more dovish than expected saying that the outlook for global growth is weaker than in August, trimming its growth outlook for this year and 2016. CPI inflation is now expected to remain below 1% until the second half of 2016. The market implied bank rate shows rate liftoff in Q1 2017 for the first rate hike, as opposed to the previous Q2 2016.

The August/September jobs report was mixed with conflicting signals on unemployment and slightly softer than expected news on underlying wages growth. According to the claimant count measure, unemployment surprisingly rose in September. A 4.6K increase followed a 1.2K gain in August and established the third, even though only small, rise in the last four months. The jobless rate on this definition was again unchanged at 2.3%, in line with expectations, and also matching the level at which it has been pegged since March.

With that said, the ILO data were much stronger, showing unemployment in the three months to August falling 79K, the first decline in three months and large enough to see the jobless rate down a tick to 5.4%.

These releases were also covered in the weekly risk events video. You can watch it here.

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