UK wage growth disappoints pushing rate hike further away

Discussion in 'Fundamental Analysis' started by FXStreet_Team, Dec 16, 2015.

  1. FXStreet_Team

    FXStreet_Team Well-Known Member Trader

    Oct 7, 2015
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    FXStreet (Mumbai) - The UK labor market data released today was a mixed bag. On one hand the ONS reported a surprise drop in unemployment rate. The unemployment rate touched a seven year low as it fell to 5.2 per cent from 5.3 per cent in the three months to September. Reuters poll had expected joblessness to remain unchanged at 5.3 per cent. On the other hand wage growth fell, growing at its slowest in pace since early 2015 in the three months to October. Wage growth slowed to 2.4 per cent from 3 per cent recorded earlier. Today’s wage data justifies the central bank’s decision to not rush with rate hike decision.

    Good news first- Unemployment rate fell

    The ONS said the number of people in employment jumped by 207,000 to lift employment rate to 73.9 per cent, the highest since records began in 1971. On the other hand the number of unemployed people fell by 110,000, the biggest fall since the three months to September 2014.

    Wage lacks inflation

    Excluding bonuses, regular earnings increased by just 2.0 per cent in the three months to October. The growth was the slowest since the three months to February as well as weaker than a forecast of 2.3 per cent in the Reuters poll. Including bonuses, earnings slowed 2.4 per cent down from 3.0 per cent in the three months to September. In October alone, regular wages rose by 1.7 per cent, marking their slowest increase since January.

    Month on month, inflation stagnated in November. It increased slightly (0.1) per cent year on year. The inflation figure is way below BoE’s 2 per cent inflation target. Poor wage growth can be considered to be a significant factor along with low oil price that has weighed on prices. Only higher wages can lift consumer spending and help to stabilize price.

    BoE governor Mark Carney he would wait for wage growth to rise above 3 per cent before raising interest rates. His sentiment was echoed by BoE Deputy Governor Minouche Shafik who reiterated that the rate cut would happen only when wages rise.

    The weaker outlook for inflation together with the slowdown in wages now will push rate hikes further into the future.
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