UK Employment Data | Volatility in the GBP

Jarratt Davis

Special Consultant to the FPA
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UK Employment data will be released today at 9.30 BST. This release has the potential to cause volatility in the GBP especially if all three employment parameters – claimant count, average earning and jobless rate – come in with deviations in the same direction. The important figure is average earnings with several BoE members looking for earnings to increase before considering to raise rates.

Description

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 official EU campaigns are finally under way. Current polls place votes to remain and votes to leave almost equal and therefore it would appear the decision will ultimately be determined by those who are yet to decide. If concerns that the British public may in fact vote to leave the EU begin to increase, or that the vote will be too close to call, then the pound will likely be subjected to increasing pressure and negative sentiment. In addition, inflation is still far below the BoE’s target and rate hikes are expected to remain on hold until 2017.

This release was also covered in weekly Forex News Strategy video here.

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