FXStreet (Barcelona) – Analyst at Danske Bank, Mikael Olai Milhøj, reviews the UK labour market data release and further forecast EUR/GBP to head lower towards 0.70 over the next 3 and 6 months.
Key Quotes
“The UK labour market statistics released today show that wage growth accelerated in April. Average weekly earnings excluding bonuses (three-month average) increased to 2.7% y/y in April from 2.3% in March (which was revised up from 2.2%) and thus wage growth is at its highest level since February 2009. Wage growth in the private sector is at 3.2% y/y. Higher wage growth is important for the timing of the first hike and thus today’s release supports our (non-consensus) call that Bank of England will hike already in November this year.”
“The combination of increasing wage growth and very low inflation implies increasing real wage growth, which is at its highest level since September 2007. As inflation is mainly low due to the drop in energy and food prices, this supports private consumption and thus the UK recovery.”
“The unemployment rate (3M) was unchanged at 5.5% in April in line with both our expectation and consensus. The unemployment rate is more or less back to normal (as measured by the Bank of England’s estimated medium-term equilibrium rate), which is an indication that the slack in the labour has diminished.”
“The number of unemployed in April declined by 43,000 (3m/3m). This was lower than the increase in employment (+114,000 3m/3m), as the number of economic active persons increased by 71,000 3m/3m. From an economic perspective it is very positive that both employment and the workforce are increasing. However, the change in the claimant count level indicates that the decline in unemployment may have started to slow down.”
“The GBP rallied on the strong UK wage growth. We target EUR/GBP at 0.70 in 3M and 6M but risks are that the cross temporarily undershoots our 3M and 6M estimates.”
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