UK Labor Market Conditions Deteriorate Going into Q2

It was a busy start to the Tuesday session on the UK economic calendar., with the UK Labour Market Overview in focus. UK wage growth, claimant counts, and unemployment figures drew interest this morning.

In March, average earnings, including bonuses, increased 5.8% year-over-year versus 5.8% in February. Economists forecast 5.8%. However, other components of the Labour Market Overview were also significant.

The UK unemployment rate increased from 3.8% to 3.9% in March, while claimant counts surged by 46.7k in April versus a forecasted 31.2k increase. In March, claimant counts rose by 26.5k. Economists forecast the UK unemployment rate to hold steady at 3.8%.

According to the Office for National Statistics,

• The economic inactivity rate fell by 0.4 percentage points to 21.0% in Q1.
• From February to April 2023, the estimated number of vacancies fell by 55,000 on the quarter.
• Average regular pay growth for the private sector was 7.0% and 5.6% for the public sector.

There was greater sensitivity to the Labour Market Overview, with the Bank of England focused on inflation. In addition to targeting inflation, UK wage growth remains a concern, with the Bank of England needing to consider elevated wage growth.

While the Bank of England stated surprise about the economy, inflation remains sticky at 10.1%. The latest Labour Market Overview suggests the need for a less hawkish monetary policy position as labor market conditions deteriorate.

GBP to USD Reaction to UK Labour Market Overview

Before the employment report, the GBP/USD fell to an early low of $1.25145 before rising to a pre-stat high of $1.25324.

However, in response to the UK Labour Market Overview, the GBP/USD rose to a post-stat high of $1.25178 before falling to a session low of $1.24914.

This morning, the GBP/USD was down 0.28% to $1.24933.

Earlier today, the Chinese economy delivered a choppy morning session. Industrial production increased by 5.6% year-over-year in April versus a forecasted 10.9%. Industrial production rose by 3.9% in March. Retail sales surged by 18.4% year-over-year versus 10.6% in March. Economists forecast a 21% increase.

While falling short of forecasts, industrial production increased at the most marked pace since September 2022, when production increased by 6.3%.

Next Up

With the BoE’s interest in wage growth and labor market conditions, investors should monitor Bank of England member commentary. However, there are no Bank of England Monetary Policy Committee members on the calendar to speak, leaving investors to track chatter with the media.

Looking ahead to the US session, it is a busy day on the US economic calendar. US retail sales and industrial production numbers will draw interest. We expect the retail sales figures to have more impact, with the markets focused on the effects of inflation and the Fed on consumption and the broader economy.

Economists forecast retail sales to increase by 0.7% in April versus a 0.6% fall in March. Retail sales have fallen in four of the last five months.

However, investors should also consider FOMC member commentary, with FOMC members Bostic, Barr, and Williams delivering speeches today.

Beyond the economic calendar, the banking sector and the US debt ceiling will also need monitoring. US President Joe Biden and House Speaker Kevin McCarthy will discuss the status of talks today and look for common ground to avert a US default.