British Pound falls vs Euro and Dollar as UK payrolls missed forecasts, strengthening the case for a Bank of England hold this week.
Pound Sterling fell against the Euro and US Dollar after UK payrolls dropped more sharply than expected, giving the Bank of England another reason to leave interest rates unchanged on Thursday.
GBP/USD traded at 1.3475, down 0.20% on the day, while GBP/EUR slipped 0.12% to 1.1677 in early Tuesday trading.
The ONS figures showed an initial 26,000 payroll decline in August against expectations for 5,000, with July’s fall revised to 19,000 from 13,000.
Pantheon Macroeconomics sees little reason for an immediate hike:
“The MPC are very likely to stay on hold even if inflation surprises consensus to the upside tomorrow, as we expect.”
Private-sector regular pay grew 2.9% year-on-year in the three months to July, while unemployment held at 4.9%.
UK economists at Lloyds see pay growth broadly matching the BoE’s 3.0% third-quarter projection.
It argues that “overall the absence of upside news versus BoE projections keeps its domestic labour market disinflation theme intact”.
Deutsche Bank’s Sanjay Raja adds: “A still sluggish labour market will give the Bank some confidence that Bank Rate remains restrictive.”
Pantheon is less convinced that the labour market has enough spare capacity to absorb the inflationary effects of higher energy costs.
“All pay indicators apart from AWE also show a labour market that is barely easing anymore, and remains far from ‘loose’.”
Its conclusion leaves later hikes firmly in view:
“So slack is stable, despite payrolls seemingly falling. We expect the MPC to hike in November and February.”
Wednesday’s inflation release now matters for sterling’s rate support beyond September.
Our currency coverage draws on live market data, official economic releases and published bank research.
