UK Wage Growth Slows, Sterling Weakens Amid Economic Stagnation

Summary

  • In the labour market, signs of a cooling inflationary pressure are noticeable, with earnings excluding bonuses increasing by 7.3% in the three months to October, compared to the previous year. This is a drop from a growth rate of 7.8% in the three months to September.
  • However, despite high annual growth in earnings, wage pressures may be easing, which could negatively impact the British economy. This is further exacerbated by the difficulties faced by many employers in filling vacancies post-Brexit and due to the workforce contraction during the pandemic.
  • The pay data is seen as reassuring by the Monetary Policy Committee and could eventually lead to the Bank of England shifting to a more neutral policy stance in 2024.
  • Nevertheless, the central bank remains cautious due to the unresolved inflationary pressures.
  • The unemployment rate remained steady at 4.2% with the employment rising by 50,000.

Inflation Cooling in the Labour Market

The labour market indicates cooling inflation with earnings (excluding bonuses) 7.3% higher in the three months leading to October than a year earlier. This shows a decrease from a growth rate of 7.8% in the three months to September. As Darren Morgan, the director of economic statistics at the ONS, suggested, wage pressures could be easing overall.

Challenges for The British Economy and Employers

The British economy is facing stagnation with risks of a shallow recession in the coming months. Further, many employers grapple with filling vacancies after the pandemic-led workforce contraction and post-Brexit restrictions on European Union workers.

Monetary Policy Reactions

With the pay data moving in the right direction, the Monetary Policy Committee remains hopeful. However, the wage growth might still be too strong to bring inflation down to its 2% target amidst economic stagnation. Meanwhile, regular private sector earnings growth dropped to 7.3% from 7.9% in the July-September period.

Pressure on Central Banks

Central banks across the globe are curbing inflation pressures in their tight job markets. While inflation in Britain is down from 11.1% last year, its recent reading of 4.6% is still more than double the BoE’s 2% target.

Unemployment Rate and Employment Rise

According to recent data, Britain’s unemployment rate remains at 4.2% with an employment rise of 50,000 in the three months to September.

Lastly, it’s worth noting that any shift in these inflation and employment trends can significantly affect forex trading, particularly in terms of the GBP and its related pairs, given that forex markets are highly responsive to changes in inflation and employment data.

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