• Wage growth picks up, however, it still lags behind inflation
  • The unemployment rate stays at 42-year low, but employment falls more than expected
  • GBP gains after the release of the labour report, EURGBP could be poised to retest the lower bound of the current consolidation 

 The key release scheduled for this morning is already behind us. The UK labour report surprised to the upside when it comes to wages, but the jobs data slightly disappointed. GBP reacted positively to these figures as the earning figures are the most important factor for investors recently. However, note that the real incomes could further deteriorate as the pace of inflation is still above the wage growth. 

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 UK wages continue a pick-up, although the rate of growth lags behind inflation. Source: Macrobond, XTB Research

The key takeaway from the UK labour report is that earnings excluding bonuses inched up slightly beating expectations. The average wages without bonuses came in at 2.3% y/y (the highest pace since January), whilst the consensus had called for +2.2% y/y. On the other hand, earnings with bonuses rose in line with forecasts to 2.5% y/y from 2.3% (there was an upward revision from 2.2% y/y). It’s a positive sign suggesting that consumption should not to significantly contract. However, wage growth still lags behind inflation which eats into the real incomes of the UK consumers.

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 Unemployment rate stays at 42-year lows, however, there could be still a slack in the labour market. Source: Macrobond, XTB Research

The unemployment rate held steady at a 42-year low, however, the gauge was seen sliding to 4.2% from 4.3%. The employment change was the biggest disappointment as the number of people in work dropped by 56k, whilst the street had called for -30k. It’s the worst outcome since May 2015. This could also mean that a small slack is opening in the labour market. Hence, BoE could switch to a wait-and-see mode for longer, if inflation slowdowns somewhat. 

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 EURGBP successfully retested a 21-period EMA, hence, the pair could be headed towards the lower bound of the current consolidation. Source: xStation5

GBP appreciated in the knee-jerk reaction to the labour reaction, however, the scale of the moves wasn’t impressive. In case of EURGBP, the pair successfully retested a local resistance (21-EMA), hence, bears could now try to move back towards 0.8747 handle, which marks the lower bound of current consolidation.