UK jobs report expected to show both unemployment and earnings rising

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• Office for National Statistics will release the UK labor market report at 06:00 GMT on September 12.
• The Unemployment Rate in the United Kingdom is set to rise to 4.3% in the quarter to July.
• The UK jobs and wage inflation data could have a strong bearing on the BoE interest rate outlook.

Following the recent dovish remarks from Bank of England (BoE) Governor Andrew Bailey, the United Kingdom’s (UK) labor market report, due to be published by the Office for National Statistics (ONS) on Tuesday, will hold significance in gauging the next interest rate move by the central bank.   

The UK labor market cooled down slightly but wage inflation remained at elevated levels, despite the Bank of England’s (BoE) 14 interest rate hikes in a row since late 2021, to curb stubbornly high inflation.

The UK ILO Unemployment Rate jumped to a two-year high of 4.2% in the three months to June when compared to a steady print of 4.0% in the previous period. The ONS said the rise was mainly generated by an increase in people being unemployed for up to six months. The number of people claiming unemployment benefits rose by 29K in July, compared with a drop of 7.3K expected.

The UK’s Average Weekly Earnings, excluding bonuses, hit a fresh record high of 7.8% 3Mo/YoY in June versus 7.5% prior. The gauge including bonuses jumped 8.2% 3Mo/YoY in the sixth month of the year as against a 7.2% rise in May. “This total growth rate is affected by the National Health Service (NHS) one-off bonus payments made in June 2023,” the ONS noted.

What to expect in the next UK jobs report?

In the three months through July, the UK ILO Unemployment Rate is expected a tad higher at 4.3% while the Employment Change is projected at -185K in July when compared to the previous reading of -66K.

The UK Average Weekly Earnings (excluding bonuses) are expected to rise 7.8% YoY through July, at the same pace as seen in the quarter to June. Average Earnings, including bonuses, are also seen steady at 8.2% 3Mo/Yr July.  

Expectations of further loosening up of the UK’s labor market and record high pay growth are likely to keep the Bank of England in a tough spot. Markets are pricing a 70% probability of a 25 basis points (bps) interest rate hike by the BoE to 5.50% on September 21.

Testifying before the UK Parliament Treasury Select Committee (TSC) last Wednesday, Bank of England Governor Andrew Bailey said that Britain’s high rate of inflation was heading for a further marked fall, but it was not yet clear whether that would slow the pace of wage growth which recently hit a record high.

“We are no longer in a phase where it was clear that rates needed to rise, we are now data-driven as the policy is restrictive. We are much nearer peak of rates, not saying we are at peak,” Bailey told lawmakers.

When is the UK jobs report and how could it affect GBP/USD?

Employment data from the United Kingdom is due to be published at 6:00 GMT on Tuesday, September 12. GBP/USD is extending its recovery above 1.2500, as the US Dollar resumes its correction from six-month highs heading into the US Consumer Price Index (CPI) release this week. Ahead of that, the UK labor market report will be closely examined for fresh hints on the BoE’s interest rate outlook, which could provide a clear directional impetus to the Pound Sterling.

Weak employment data combined with a sticky wage inflation print would support the narrative that the BoE interest rate could be nearing its peak. Markets could shrug off the pay growth rise due to the influence of a one-time bonus payment by the NHS. In such a scenario, The Pound Sterling is likely to come under intense selling pressure, dragging GBP/USD back toward the three-month low of 1.2447.

Should the UK economy show a robust job gain alongside an elevated wage inflation level, GBP/USD could see additional recovery unfolding toward 1.2650, in the wake of the revival of hawkish BoE rate hike expectations.

Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the GBP/USD pair and explains: “The currency pair has managed to defend the critical 200-Daily Moving Average (DMA) at 1.2430 even though the 14-day Relative Strength Index (RSI) remains well below the midline.”

Dhwani also outlines important technical levels to trade the GBP/USD pair: “Pound Sterling sellers could aim for a retest of the 200 DMA support at 1.2430 on a downbeat UK labor market report, reopening floors toward 1.2350 psychological level. Conversely, an upside surprise in the data is needed to recapture the 1.2600 round level, above which the bearish 21 DMA at 1.2630 will be challenged.“