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UK unemployment rate seen unchanged at 5.2%, wage growth to drop

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) - The ONS will publish UK’s labour market report today at 9.30 GMT. Unemployment rate for the three months to November is expected to come in at 5.2%, unchanged from the rate seen previously. UK employers are expected to have added 235,000 jobs. Unemployment Rate in the UK averaged 7.18 per cent from 1971 until 2015. It reached an all-time high of 12 per cent in February 1984 and a record low of 3.40 per cent in November 1973.

    Average weekly earnings are forecast to have grown 2.1% in the three months to November, dropping from the 2.4 per cent rise seen in the previous three months. Wages in the United Kingdom averaged 415.11 GBP/Week from 2000 until 2015. It reached an all-time high of 495 GBP/Week in July of 2015. 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.

    Analysts estimate jobless claims to have likely risen 2,800 in December. The claimant count rate expected to remain unchanged from the earlier reading of 2.3% in December.

    The jobs report is crucial for the BoE to decide on the timing of the rate hike. The central bank has held rates steady at a record low of 0.5 per cent for almost six years. Two reasons are primarily responsible for keeping rates at record low- poor inflation and wage growth. 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. Strong currency and volatility seen in China are largely responsible for a weak price environment in the UK.

    Poor wage growth couples with with low oil price have also impacted prices negatively. Only higher wages can lift consumer spending and help to stabilize price. BoE governor Mark Carney has stressed that he will wait for wage growth to move above 3 per cent before hiking rates. BoE Deputy Governor Minouche Shafik echoes Carney’s sentiment reiterating that the rate cut would happen only when wages rise.

    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. Governor Carney yesterday said that it was not yet time to consider a rate hike given UK’s weak fundamentals. He flagged concerns related to the weaker global growth outlook as well. He stressed "The year has turned and, in my view, the decision proved straightforward: now is not yet the time to raise interest rates." Reuters quoted Howard Archer, chief UK economist at IHS Global Insight who said there was little possibility that the BoE will raise rates before August 2016.
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