UK Earnings and Employment Data Beat Expectations

Pound sterling traded higher mid-week after employment market data confirmed the UK economy is not in such bad shape heading into a potential divorce from the European Union.

UK employment and impact on the British pound exchange rate complex

The pound was bid in mid-week trade on news the number of unemployed people looking for work defied predictions and fell at a faster pace than expected.

The employment rate meanwhile pushed up to record levels.

Wages grew at a much faster rate than analysts had expected, suggesting the Bank of England may have to raise interest rates sooner than many are expecting.

The data halped GBP, but we would say the majority of the strength came from a settling in referendum-orientated sentiment.

Claimant Count Falls

The number of people claiming benefits dropped by 4000 in the last month to 746,100, however the April figure has been revised to show an increase of 6,400 due to people claiming the out of work element of the Universal Credit.

Economists and markets were only forecasting a decline by 1000.

Overall, though, the figures are encouraging – the claiming count has dropped by 47,900 on the same period last year.

Unemployment fell by 20,000 in the quarter leading up to April and now stands at 1.67million – the lowest since the spring of 2008. Overall, the unemployment rate now stands at 5%.

The in-work figure has again reached new record levels at 3.5million – which represents the highest figure since records began.

Almost three quarters of people are now in work – another record while the jobless rate is 5% which is the lowest for a decade.

Earnings Rise Faster than Expected

There’s some good news in earnings too.

Including bonuses, three-month average weekly earnings increased by 2% over the last year – 2.3% excluding bonuses.

Pay growth in April itself was 2.5% which the ONS attributes to the introduction of the Living Wage.

The average earnings rate, bonuses included, was only forecast to rise 1.7%.

Public Versus Private Employment

In other data both the number of public and private sector workers grew.

Public sector employment rose by 6,000 mainly due to a rise of NHS staff – the number of people working in the private sector has nudged above 26 million, which is 50,000 more than last year.

However, cuts to local government funding have taken their toll with 17,000 fewer workers over the last few month bringing the total to a record low of 2.2million.

However, it could be argued that the Conservative's have achieved one of their main goals when they took office: lower the massive crutch the state provided to the UK workforce:

Public sector employment

Regional differences are much as expected.

The South East continues to see the lowest claimant rate at 1.2% while Northern Ireland saw the highest (4.2%). For the most part, over the last 12 months, there has been no change in regional claimant counts.

The news comes as an unexpected lift, after experts had predicted the claimant count would rise as uncertainty over Brexit stalls activity.

LFS data predicted the jobless rate to be 5.1% against the actual figure of 5% and that earnings growth would decline to 1.8% - 0.2% lower than the actual figure.

Confirmation the Economy is in a Decent State

The figures can be taken further evidence that growth is not being impacted unduly by the Referendum, as Ruth Miller an economist at Capital Economics confirmed.

“Overall, the solid labour market figures should allay fears that uncertainty ahead of the referendum has significantly weighed on the economy in Q2,” she said. “And since the unemployment rate is in line with its estimated long-run equilibrium rate, it is unsurprising that pay growth is now on the up again. If this continues, and the UK votes to stay in the EU, a rate hike might come back on the agenda before too long.”

The two campaigns will each find ways of using the figures to support their arguments – Remain suggesting that Brexit would endanger economic recovery while Vote Leave will argue the strong growth suggests businesses are not overly concerned about the impact on growth.

Meanwhile, the impact of the Living Wage appears to have been largely positive – sparking an increase of wages without, so far, a reduction in jobs.

Overall, then, it’s good news.

Employment growth may have slowed a little compared with the last few years, but still point to a healthy future – depending of course on what happens next week when Britain goes to the polls.

"The data was welcome news to pound bulls who have seen UK economy decelerate over the past few months on fears of Brexit. The risk of UK leaving the EU still remains significant and the latest swirl of polls suggests that vote is too close to call, but should UK economy survive the Brexit vote, the underlying fundamentals appear to have been relatively unscathed by the political trauma and cable could pop substantially on a Remain win," says Boris Schlossberg at BK Asset Management.

Free exchange rate forecasts