British Pound Finds Support from Better-than-Forecast Wage and Employment Data

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The GBP has found support as markets finally get a bit of good news out of the UK economy.

The pound rallied on news that UK wage data rose at a faster-than-anticipated rate in April while UK wages were also on the up.

However, while the British pound did catch a bid from the 18th May release, some questions were raised.

The official statistics body revealed a sharp difference between wage inflation when bonuses are included and basic pay.

In actual money terms average weekly earnings including bonuses increased to 499 pounds a week.

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Basic Earnings Excluding Bonuses, however, which some see as a more accurate reflection of real wage inflation, actually slowed from the previous month’s 2.2% and fell below the 2.3% forecast by coming out at only 2.1%.

The data also showed that overall employment rose by 44k in Q1 compared to the previous quarter, and that average weekly earnings including bonuses increased by a higher-than-expected 2.0% rate, which was faster than the 1.9% of the previous quarter and the 1.7% expected.

“There is still scant sign of significant pay pressure…” Reflected the macro team at Lloyds Commercial Banking.

“As bonuses tend to distort the headline total pay measure at this time of year, and regular pay trends tend to be stickier, arguably this is the more important metric, with the dip falling well short of expectations," says a a note released by Lloyds on the matter.

"As far as employment data went, the 44k rise from Q4 and the 409k rise from a year ago, was “moderately reassuring”, according to Lloyds.

The data may have taken some of the venom out of depressing signs from large recruitment agencies, that a recent slow-down in demand for staff had extended into April, but Lloyds did not see the improvement in employment figures as sufficient to alter the Bank of England’s cautious stance yet.

“Nevertheless, pending the resolution of near-term uncertainties the MPC is likely to take limited steer from the data, in either direction. For the time being, both our and the MPC’s working assumption is that the re-absorption of the economy’s spare capacity will resume in the second half of the year.” Ends the Lloyds note.

The concerns about a slow-down in demand for new jobs were highlighted by recruitment website Indeed’s chief economist Mariano Mamertimo, who said the Job Vacancies had fallen in 12 of the 13 secotrs tracked by Indeed, blaming global headwinds, Brexit concerns and the higher national minimum wage as causes:

“Yet it’s clear that with strengthening global economic headwinds, and many employers holding off on hiring while the Brexit uncertainty persists, the UK economy is no longer creating new jobs at the rate it did last year.

“There’s also evidence that the introduction of the National Living Wage at the start of April has had a further chilling effect on employers’ appetite to hire.

“While the policy provided a welcome pay rise to thousands of Britain’s lowest paid workers, it may have unwittingly made life harder for jobseekers.

“In April, job vacancies fell in 12 of the 13 sectors tracked by Indeed’s UK Industry Employment Trends report.” He wrote in a response note.

The ONS data showed the unemployment rate stayed at 5.1%, which is five consecutive months.

Compared to Q4 in 2015, the number of people in work rose by 44k, the number out of work stayed the same, but the number of people not working or seeking work fell.

In Q1 2016 the number of people in work rose by 409k compared to the previous year’s Q1.

The Claimant Count fell by -2.4k in April, beating expectations of a 4.3k rise and March's 14.7% increase.  

The employment rate, which is the percentage of people of working age in work rose to 74.2%, the highest number since records began in 1971.

The inactivity rate - that is the proportion of people between 16-65 who were not in work fell to its joint lowest levels since records began.