The UK labor market showed mixed signs in the quarter ending September, with wage growth moderating but the unemployment rate rising more than expected.
The Office for National Statistics (ONS) reported that regular wage growth (excluding bonuses) fell to 4.8% in the three months to September from 4.9% in August, while the unemployment rate rose to 4.3% from 4.2%.
Key points from the ONS report:
- The number of salaried employees decreased by 9,000 (0.0%) during the quarter but increased by 182,000 (0.6%) over the year.
- Regular wage growth (excluding bonuses) slowed to 4.8% in July-September from 4.9%
- Total wage growth (including bonuses) was 4.3%, compared to 3.9% in the June-August period.
- Unemployment rate rose to 4.3% (4.0% expected; 3.9% previous)
- The number of claims for October 2024 increased both month-on-month and year-on-year to 1.806 million
Link to the September labor market overview from the Office for National Statistics
Wage growth data suggests some easing in wage pressures, although the pace remains above levels typically consistent with the Bank of England’s 2% inflation target. Coupled with rising unemployment and net job losses, we could see an environment where higher interest rates are starting to impact the labor market significantly.
This is arguably generally bearish compared to both forecasts and previous readings, but with wage growth remaining high compared to the 2% inflation target, we think it is slightly bearish at the moment and is unlikely to shift the BoE to a more dovish stance.
Market reactions
British pound against major currencies: 5 minutes
Overlay of the British pound against the major currencies Chart by TradingView
The British pound initially weakened overall after the mixed (but arguably bearish) labor market report. But downward moves were limited compared to the pre-event price, with the pound recovering against most major currencies before heading into the US session.
Again, the relatively limited currency reaction likely reflects that the data is unlikely to significantly change the Bank of England’s policy outlook. Wage growth figures were broadly in line with the Bank of England’s latest forecast, although the rising unemployment rate is likely to add an element of caution.
The pound turned broadly lower with momentum during the US session. This may be due to US traders reacting to the UK’s bearish jobs results, combined with the strength of the US dollar, which rose significantly as US Treasury yields rose.
This rise in yields appears to be a reaction to the latest round of news about Trump’s potential/actual appointments for the upcoming change in administration. We also saw several Fed members speaking at the session, including… Federal Reserve Bank of Richmond President Parkin Which pointed to the resilience of the US labor market and business sentiment, reducing the odds of the Fed making significant cuts in the future.
It is also possible that the idea of lower demand for US bonds ahead of a potentially favorable economic policy environment/increased bond issuance in advance to fuel those policies is driving the rise in Treasury prices as well.