UK Wage Growth Slows to 6.5% as Job Vacancies Trend Lower

Highlights

• UK wage growth could incentivize the Bank of England to begin discussions about rate cuts.
• The UK unemployment rate remained unchanged while job vacancies extended the downward trend to 18 consecutive periods.
• Later today, Bank of England Governor Andrew Bailey will be in the spotlight.

UK Labor Market Report – January 2023

On Tuesday, the UK labor market was in the spotlight. UK average earnings, employment change, and unemployment rate garnered investor interest. Softer wage growth and weaker labor market conditions could reduce disposable income. Downward trends in disposable income could curb consumer spending and dampen demand-driven inflation.

In November, average earnings (incl. bonus) increased by 6.5% (3M/Yr) after rising by 7.2% in October. Economists forecast average earnings (incl. bonus) of 6.8%). The unemployment rate remained unchanged at 4.2% while employment increased by 73k. Economists forecast employment to rise by 50k and a 4.2% unemployment rate.

According to the Office for National Statistics,

• Estimated job vacancies declined by 49k in the three months to December. Job vacancies fell for 18 consecutive periods.
• The number of payrolled employees declined by 24k.

Bank of England Monetary Policy Implications

The softer-than-expected wage growth figures could incentivize the BoE to begin discussions about rate cuts. Wage growth has been a bugbear for the BoE. Strong wage growth fueled consumer spending and demand-driven inflation, forcing the BoE to keep a more hawkish rate path.

GBP/USD Reaction to UK Wage Growth

Before the UK employment figures, the GBP/USD rose to a high of $1.27290 before falling to a low of $1.26765.

However, in response to the numbers, the GBP/USD rose to a high of $1.26830 before sliding to a low of $1.26597.

On Tuesday, the GBP/USD was down 0.46% to $1.26679.

Up Next: US Manufacturing Data and Central Bank Speeches

The NY Empire State Manufacturing Index will be in focus on Tuesday. Improving manufacturing sector conditions would support expectations of a US soft landing.

Beyond the numbers, FOMC member Christopher Waller and Bank of England Governor Andrew Bailey are on the calendar to speak. Governor Bailey will give testimony at the Lords Economic Affairs Committee hearing (BST: 1500).