The GBP has certainly had a spring in its step over the last 10 days. Although on Tuesday GBP/USD couldn’t maintain its hold on a 1.40 handle, this morning the pound is back at the top of our one-day performance table having made a fresh 4 ½ month high against the NZD and a fresh 20-month high against the AUD. GBP/CAD is up around a quarter of a cent on the day but still almost a cent below Monday’s 1.8400 peak.
There was arguably something for everyone in this morning’s UK labour market report, though on balance the message was definitely a positive one. Unemployment fell by 24,000 in the three months to January, based on a 144,000 increase in the working population and a 168,000 rise in employment. There were 32.25 million people in work, 168,000 more than for the previous 3-month period and 402,000 more than for a year earlier. The Office for National Statistics noted the employment rate (the proportion of people aged from 16 to 64 who were in work) was 75.3%, higher than for a year earlier (74.6%) and the joint highest since comparable records began in 1971. The unemployment rate, meantime, was 4.3%, down from 4.7% a year earlier and the joint lowest since 1975.
We wrote in our UK commentary this morning that, “In its February inflation report, it suggested that a 4.4% unemployment rate would begin to put upward pressure on wages. If this happens today, then the GBP might well find some more support.” The good news is that this is exactly what transpired. The new figures show that average weekly earnings for employees in Great Britain in nominal terms (that is, not adjusted for price inflation) increased by 2.6% excluding bonuses, and by 2.8% including bonuses, compared with a year earlier. The squeeze on real earnings hasn’t officially ended as today’s numbers were for January whilst the CPI data are for February. But, if the wage data are repeated next month, then the 12-month run of negative earnings growth will finally come to an end; a relief not just for workers, but also for the UK Government and the Bank of England whose forecasts of real pay growth have been consistently too optimistic. The British Pound opens in North America at USD1.4060, GBP/EUR1.1445 and GBP/CAD1.8305.