UK Wage Growth Will Keep Pressure on the Bank of England

It was a busy start to the day on the UK economic calendar. UK wage growth, claimant count, and unemployment numbers were in the spotlight. With the Bank of England looking to curb wage growth to support an inflation return to target, today’s numbers drew plenty of interest.

In December, wage growth + bonus increased by 5.9% year-over-year versus 6.5% in November. Economists forecast an increase of 6.2%. However, wage growth ex-bonus rose by 6.7% versus 6.5% in November. Economists forecast a rise of 6.5%.

The UK unemployment rate held steady at 3.7% in December, which was in line with forecasts, while claimant counts fell by 12.9k in January versus a 17.9k increase. Claimant counts fell by 3.2k in December. The fall in claimant counts supports a steady unemployment rate for January.

According to the ONS,

• The unemployment rate increased by 0.1 percentage points in Q4.
• Average regular pay growth for the private sector was 7.3% in Q4, the largest growth rate outside of the pandemic period.

With the stats on the heavier side, investors also need to consider Monetary Policy Committee member speeches. However, with no MPC members on the BoE calendar to speak today, investors need to monitor commentary with the media.

Last week, Chief Economist Huw Pill pointed out that the Bank must continue to tackle upside inflation risks despite an extended period of weakness in the UK economy. Monetary Policy Committee Member Jonathan Haskel took a more hawkish line, favoring more forceful action. A pickup in wage growth would support Haskel’s more hawkish stance.

GBP/USD Reaction to UK Wage Growth

Ahead of today’s stats, the GBP/USD fell to an early low of $1.21317 before rising to a high of $1.21523.

However, in response to the employment report, the GBP/USD jumped to a session high of $1.21713 before easing back.

At the time of writing, the GBP/USD was up 0.12% to $1.21543.

Next Up

It is a big day on the US economic calendar. The heavily anticipated US CPI Report will be the report of the day.

An unexpected pickup in inflationary pressure would weigh on the GBP/USD and riskier assets. Economists forecast the US annual inflation rate to soften from 6.5% to 6.2%.

With inflation in focus, investors also need to monitor FOMC member chatter. FOMC members Logan and Williams will speak today.

Market fears of a hotter-than-expected US CPI Report eased on Monday, delivering GBP/USD support. According to a Monday Fed press release, the January 2023 Survey of Consumer Expectations showed that household growth expectations fell significantly in January while holding above pre-pandemic levels.