In the United Kingdom, unemployment unexpectedly rose, reaching its highest level in more than two and a half years.
At the same time, pay pressure has decreased in the mentioned country, against which a kind of space of opportunities is being formed for the Bank of England to ease monetary policy in the current year.
In the three months through April, the unemployment rate in the United Kingdom reached 4.4%. This figure is the highest since mid-2021. The relevant information was published by the Office for National Statistics on Tuesday, June 11.
The average weekly earnings in the UK private sector increased by 5.8% over the mentioned period. It is worth noting that the financial regulator of the United Kingdom pays special attention to the dynamic of this indicator. The specified figure has demonstrated the slowest growth rate in the last two years. At the same time, the minimum wage in the United Kingdom has increased by almost 10%.
The data released on Tuesday is a reason for optimism about the realism that the Bank of England will begin lowering the cost of borrowing against the background of weakening underlying inflationary pressures. It is worth noting that the United Kingdom is currently experiencing interest rates that are the highest in the last 16 years.
After the Office for National Statistics released information on unemployment in the UK, the pound edged, because the money markets increased their bets on lowering the cost of borrowing.
Tomasz Wieladek, chief European economist at T. Rowe Price, says that the labor market in the United Kingdom is currently on a slow weakening trajectory. According to the expert, the corresponding state of affairs is a strong signal for the Bank of England to begin easing monetary policy, which provides for cutting interest rates.
Currently, traders expect the cost of borrowing to decrease by the first quarter of a point by November. Also, in their opinion, the probability of re-cutting interest rates in the current year is about 40%. It is worth noting that on Monday, June 10, the corresponding figure was fixed at 20%.
For the Prime Minister of the United Kingdom, Rishi Sunak, the data released on Tuesday is also what can be described as a positive political momentum ahead of the July parliamentary elections. In this case, it implies information that real wages in the UK increased by 2.9%. The mentioned pace of increase of the specified indicator is the highest since the summer of 2021. Also, for the tenth month in a row, wages have been rising above the inflation rate in the United Kingdom.
Currently, according to the results of public opinion polls, there is an electoral preference in favor of the Tories. The Labour Party is losing ground. Conservatives also expect that promises of cutting taxes and interest rates will form a positive mood in the public opinion space.
The number of job vacancies in the United Kingdom decreased by 12,000 to 904,000. This indicator has been on a downward trajectory for the 23rd month in a row. At the same time, the current number of job vacancies is still higher than the level observed before the outbreak of the coronavirus pandemic.
The total earnings growth was 5.9%. At the same time, the indicator, excluding bonuses, remained at the level of 6%.
Stephen Evans, chief executive at the Learning and Work Institute, says that average earnings are rising in real terms as inflation declines. At the same time, the expert noted that the corresponding figure is 12,000 pounds per year lower than it would have been before the financial crisis.
Currently, the pound is the best-performance currency in the Group of 10, as interest rates in the United Kingdom are expected to remain at a high level for longer compared to the economies of other countries. In this context, it is worth mentioning that the European Central Bank lowered the cost of borrowing by a quarter of a percentage point. It is also expected that the mentioned financial regulator will make at least one more relevant decision before the end of the current year.
Economists Ana Andrade and Dan Hanson say that the unexpected slowdown in wage growth in the private sector is likely to give some confidence to the Bank of England regarding the dynamic of inflation on the path to the target of 2%. However, the mentioned indicators are not enough for the central bank of the United Kingdom to declare that the economic situation in all its many aspects and circumstances is positive.
Rate-setters UK financial regulator against the background of the election campaign have canceled all public appearances and speeches. This means that investors will not know how the Bank of England assesses the current economic situation in the context of the prospects for monetary policy easing.
