The U.K. labor market showed mixed signals in the quarter ending in September, with wage growth moderating but the unemployment rate rising more than expected.
The Office for National Statistics (ONS) reported that regular pay growth (excluding bonuses) eased to 4.8% in the three months to September from 4.9% in August, while the unemployment rate climbed to 4.3% from 4.2%.
Key points from the ONS report:
- Payrolled employees fell by 9,000 (0.0%) over the quarter but rose by 182,000 (0.6%) over the year
- Regular pay growth (excluding bonuses) slowed to 4.8% in July-September vs. 4.9%
- Total pay growth (including bonuses) came in at 4.3%, up from 3.9% in June-August
- Unemployment rate rose to 4.3% (4.0% forecast; 3.9% previous)
- Claimant Count for October 2024 increased both on the month and on the year, to 1.806M
Link to ONS September Labor Market Overview
The wage growth data suggests some cooling in pay pressures, though the pace remains above levels typically consistent with the Bank of England’s 2% inflation target. Combined with the rise in the unemployment rate and the net job loss, we could be seeing an environment where higher interest rates are starting to impact the labor market more notably.
This is overall arguably bearish relative to both expectations and previous reads, but with wage growth remaining elevated relative to the 2% inflation target, we think it’s only slightly bearish for now and not likely to shift the Bank of England to a more dovish stance.
Market Reactions
British Pound vs. Major Currencies: 5-min
Overlay of GBP vs. Major Currencies Chart by TradingView
The British pound initially weakened across the board following the mixed (but arguably bearish) labor market report. But the downside moves were limited relative to pre-event price, with Sterling recovering against most of the majors before heading into the U.S. session.
Again, the currency’s relatively contained reaction likely reflects that the data was unlikely to significantly alter the Bank of England’s policy outlook. The wage growth figures were largely in line with the BoE’s latest projections, though the higher unemployment rate likely adds an element of caution.
Sterling did turn broadly lower with momentum during the U.S. session. This may have been due to U.S. traders reacting to the bearish U.K. jobs outcome, combined with U.S. dollar strength, which took a significant ride higher as U.S. Treasury yields surged.
This surge in yields appears to have been a reaction to the latest round of news on Trump’s potential / actual appointments for the upcoming change in administration. We also saw several Fed members speak on the session, including Richmond Fed President Barkin who noted a resilient U.S. labor market and business sentiment, lowering the odds of aggressive Fed cuts ahead.
It’s also possible that the idea of reduced U.S. bond demand ahead of a likely favorable economic policy environment/ increased bond issuance ahead to fuel those policies may have been a driver of Treasury rates higher as well.
