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UK’s unemployment rate falls, wage growth continues to disappoint

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Jan 20, 2016.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - ONS today reported a fall in UK’s unemployment rate in three months to November. The unemployment dropped to 5.1 per cent, down from 5.2 per cent seen in the three months to October and the lowest since early 2006. The number of people in employment jumped by 267,000, its third biggest increase since records began in 1971. The employment rate reached a record high of 74.0 per cent.

    Wage growth however disappointed. Total earnings of workers including bonuses increase d 2.0 per cent in the three months to November, lower than the 2.4 per cent growth seen previously and also lower than 2.1 per cent market estimate. Earnings after bonus were 1.9 per cent. Wage growth in the three months to November grew at its slowest pace since February 2015. Total wages in the private sector increased by 2.2 per cent in November compared with 2.1 per cent growth seen in October. HSBC analysts are of the opinion "Pay growth will continue to slow in November, in part due to base effects, but should rise back over the coming months as these base effects fall away”.

    While the labor market has shown steady signs of recovery, wages remain a worry for policy makers. Poor wage growth coupled with low oil price have also impacted prices negatively. The CPI data released yesterday showed annual inflation for 2015 remained flat for the first time since 1950. It came in below the 1.5 per cent rate seen in 2014. British inflation has hovered near zero since early 2015, far below the Bank of England's 2 per cent target.

    Only higher wages can lift consumer spending and help to stabilize price. BoE governor Mark Carney had earlier said that he will wait for wage growth to move above 3 per cent before hiking rates. Yesterday he reiterated the central bank will consider raising rates only when underlying price pressures particularly wage growth and core inflation move towards set target. He has also stated that the unemployment rate at which wages start to raise inflation rate could be lower than previously thought.

    With dissatisfactory wage growth and weak global outlook hindering growth in the UK, the BoE has no pressure to move. It can wait longer before raising rates from record low of 0.5 per cent. The central bank is now expected to raise interest rates only in the third quarter of 2016.
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