Wages are up 2.2% y/y in the UK in August, better than expected and with an upwards revision for July which is now 2.2% instead of 2.1%. Excluding bonuses, wages are up 2.1%, also above 2% predicted. The unemployment rate remains at 4.3% as expected. A small disappointment comes from the Claimant Count Change for September: a rise of 1.7K, slightly above 1K predicted.
All in all, this is good news. Higher wages should lead to higher inflation and support higher interest rates. GBP/USD is a bit higher, hitting 1.32. It is important to note that the pound was ticking higher already ahead of the release and remains entrenched in a relatively narrow range.
The UK was expected to report a small rise in the number of jobless claims: 1,000 people in September, after a drop of 2,800 in August. Average hourly earnings carried expectations for remaining unchanged at 2.1% in August. Wages excluding bonuses were predicted to rise by 2%, weaker than 2.1% seen in July. The unemployment rate was projected to stay at 4.3%.
GBP/USD was trading lower due to Carney’s lack of enthusiasm on raising rates. The BOE is expected to hike the interest rate in November, but it could be just a single hike, with no follow-up. Governor Mark Carney cut the interest rate in August 2016, immediately after the EU Referendum, and this would be an undoing of that hike.
Yesterday we learned that inflation reached 3% y/y in September, exactly as expected. Prices are rising at an accelerated pace mostly due to the weakness of the pound, a result of Brexit.
And speaking about Brexit, negotiations seem to go nowhere fast, despite May’s quick trip to Brussels on Monday.