UK Employment Figures Lower the Chance of Rate Cut

Alan Penny

21 January 2020

2 min read

UK flag

  • Claimant Count Change much lower than anticipated
  • Unemployment Rate as expected
  • Average Earnings Index 3M/Y better than anticipated as well

To kick off the Tuesday session, the UK released employment figures. This is something that a lot of traders will be paying attention to, considering there is a huge debate as to whether or not the Bank of England is going to cut interest rates at the end of the month.

Clearly, employment is a major component of any decision that would involve a rate cut, so the fact it came out better than anticipated brings down the odds of a rate cut quite a bit.

Employment announcements positive

Tuesday opened up with the Average Earnings Index 3M/Y which, although not part of employment, is something that traders will look to in order to see how the economy is going.

Earnings being stronger than anticipated is a good sign, as it means that there will be more demand for labor. As the number came out at 3.2%, it was bullish for the British pound and British equities, considering the expected 3.1% had been exceeded.

the employment situation in the United Kingdom has not been hit as hard as people had anticipated

Claimant Count Change came in at 14,900 as opposed to the expected 33,400 for the announcement. This is a clear beat showing that, perhaps, the employment situation in the United Kingdom has not been hit as hard as people had anticipated due to Brexit and the overall global slowdown. Up next was the Unemployment Rate, which came in at 3.8% as anticipated.

All of these numbers seem to reiterate the resiliency of the British economy, as it has been through quite a bit of uncertainty over the last three years. Reports of a United Kingdom falling apart due to Brexit have been greatly exaggerated.

The fallout from the numbers

The reaction to the handful of economic announcements was that the British pound shot higher, reaching towards the 1.31 handle over the next couple of hours. The British pound had been on its back foot for a while.

Now that employment figures have come out, it shows signs of just how important the attitude of traders and the possibility of an interest rate decision at the end of the month is for the way traders look at Britain.

All things being equal, it looks as if the British pound and British equities are going to continue the trajectory higher, as value hunters continue to reach towards London. The last three years have made most things British related extraordinarily cheap, and this is the latest announcement that suggests the value is going to continue to attract even more money.

The road forward is going to be paved with uncertainty all over the globe, but it is looking positive for the United Kingdom.

Written By
Alan Penny

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