GBP fell against most of the other major currencies in the European session on Tuesday as the data showed a sharp slowdown in wage growth in the UK in November, supporting the case for early interest rate reduction by the Bank of England (BoE).
The pound rose versus AUD and SEK but declined versus the rest of its major rivals.
The Office for National Statistics (ONS) reported this morning that average earnings excluding bonuses jumped 6.6% YoY in the three months through November 2023, slowing sharply from a downwardly revised 7.2% YoY climb (from +7.3% YoY) in the three months through October. This marked the weakest annual increase in regular earnings since January 2023 (+6.6% YoY), and was in line with economists’ forecast.
The official data also showed the UK’s jobless rate remained unchanged at 4.2% in the three months through November, while vacancies dropped by 49,000 in the fourth quarter of 2023, registering the 18th straight fall. Meanwhile, the number of people in work grew by 73,000 in the three months to November, following an upwardly revised 55,000 increase in the previous period. This marked the third straight gain in employment.
Overall, the latest batch of jobs data confirmed that Britain’s labour market is cooling and indicated that risks of inflation persistence are receding, slightly reinforcing bets on the BoE interest rate cuts. According to Bloomberg, markets are now foreseeing around 24 basis points of rate cuts by the British central bank’s May meeting, up from 22 points priced at the start of the day. This implies that a quarter-point rate decrease is almost fully priced for May. In addition, the bets are approaching fully pricing three rate reductions by August.
Tomorrow, investors will receive the UK’s inflation report for December, which could have a more significant impact on the BoE rate expectations than today’s jobs data did.