British Pound Rises Ahead of Expected Soft UK Job Report

The British pound rises 0.20% to 1.2549 against the US dollar ahead of the UK job report. The report, expected to show a decline in employment and wage growth, may impact the Bank of England's interest rate decisions.

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British Pound Rises Ahead of Expected Soft UK Job Report

British Pound Rises Ahead of Expected Soft UK Job Report

The British pound (GBP) has risen 0.20% to 1.2549 against the US dollar (USD) on Monday, ahead of the UK job report scheduled for Tuesday. The report is expected to show signs of weakness in the UK labor market, which may impact the Bank of England's interest rate decisions.

Why this matters: The UK job report has significant implications for the country's economic growth and monetary policy, as it may influence the Bank of England's decision to lower interest rates. A decline in employment and wage growth could also have a ripple effect on the broader economy, impacting consumer spending and business investment.

The UK job report is forecast to show a decline in employment change by 215,000 in the three months to March, following a decline of 156,000 in the previous release. Wage growth, including bonuses, is expected to fall to 5.3%, down from 5.6%. The unemployment rate is also expected to rise to 4.3%, up from 4.2%.

The Bank of England (BoE) will closely monitor the employment report, as a decline in employment and wage growth could complicate its plans to lower interest rates. Despite the UK's stronger-than-expected GDP growth of 0.6% in the first quarter, the market is still pricing in a 48% chance of a rate cut in June.

BoE Governor Andrew Bailey remained non-committal about a June rate hike, saying he was "optimistic that things are moving in the right direction" but did not rule out a hike. High interest rates have been in place since late 2021 to combat inflation, but wage inflation has proved harder to stamp out than price inflation.

Hiring intentions among British employers have fallen for 10 months in a row, according to the Business Trends report by accountancy firm BDO. The Employment Index, which measures hiring intent, has fallen to 97.3, its lowest level since early 2013. However, a survey by the Chartered Institute of Personnel and Development found that British private sector employers still intend to increase wages by above-inflation 4% over the next 12 months.

"Cautious optimism is the order of the day for U.K. businesses hoping for an interest rate cut this summer," said BDO partner Kaley Crossthwaite. "It's heartening to see a turning point begin to materialise for the economy." A loose job market could lead to reduced pay rises, which may be bad for workers but good for central banks looking for signs that the economy can handle a rate cut.

In the US, the University of Michigan consumer confidence index fell to 67.4 in May, below the market estimate of 76.2. One-year inflation expectations rose from 3.2% to 3.5%, indicating consumers are less confident about inflation receding.

The UK job report on Tuesday will provide crucial insights into the state of the labor market and its potential impact on the Bank of England's monetary policy decisions. With expectations of a decline in employment and wage growth, the central bank faces a delicate balancing act as it seeks to control inflation while supporting economic growth. The outcome of the report could determine the timing and magnitude of future interest rate adjustments in the UK.

Key Takeaways

  • GBP rises 0.20% to 1.2549 against USD ahead of UK job report.
  • UK job report expected to show decline in employment and wage growth.
  • Bank of England may delay interest rate cut if report shows weakness.
  • UK employers plan to increase wages by 4% in the next 12 months.
  • UK job report to impact Bank of England's monetary policy decisions.