The United Kingdom’s (UK) ILO Unemployment Rate remained steady at 4.9% in the three months to May after reporting 4.9% in the previous reading, data published by the Office for National Statistics (ONS) showed on Tuesday. The data came in below the market consensus of 5.0%.
Additional details of the report showed that the number of people claiming jobless benefits rose by 6.7K in June, compared with a revised increase of 1.3K in May and the expected 28.3K gain.
The Employment Change data came in at 147K in May against 100K recorded in April.
Meanwhile, Average Earnings, excluding Bonus, in the UK ticked up by 3.4% three months year-over-year (3M YoY) in May versus a 3.4% growth booked previously. The market expectation was for a 3.4% print.
Another measure of wage inflation, Average Earnings, including Bonus, climbed by 4.3% in the same period after increasing by 4.4% in the quarter through April. The data missed the estimate of 4.5%.
GBP/USD reaction to the UK employment report
The British Pound (GBP) edges slightly higher in an immediate reaction to the UK employment report. At the time of writing, the GBP/USD pair is trading 0.14% higher on the day to trade at 1.3450.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
