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Bank of England faces pressure following average earnings spike as unemployment rises


  • UK Employment Change(May) Actual -65.7k Vs Forecast 75k.

  • UK Unemployment Rate(June) Actual 4.2% Vs Forecast 4%.

  • Average Earnings incl. Bonus (3Mo/Yr)(June) Actual 8.2% Vs Forecast 7.3%.

The latest data out from the UK showed a mixed bag for the UK labour market. Estimates for April through to June 2023 show decreases in the employment and economic inactivity rates compared with the previous quarter. The number of people in work fell fell by 66 thousand in the three months to June 2023, against market expectations of a 75 thousand rise and following a 102 thousand increase in the previous period. This is the first drop in job creation since August 2022 and could be a sign of some cooling in the labor market despite the increase in average earnings.

The unemployment rate increased to 4.2% on the quarter above the forecasted figure of 4% and 0.2% above pre-coronavirus pandemic levels. The increase in unemployment was driven by people unemployed for up to 6 months. In the latest quarter, the number of people unemployed for up to 6 months increased, with the largest increase since August to October 2022. This suggests that it is taking longer for those leaving economic inactivity to find work than in recent periods.

In April to June 2023, annual growth in regular pay (excluding bonuses) was 7.8%; this is the highest regular annual growth rate since comparable records began in 2001. Average earnings incl. bonuses rose even faster coming in at 8.2% for the period April to June 2023; it is important to note that this total growth rate is affected by the NHS one-off bonus payments made in June 2023.


Looking ahead and the recent GDP data out of the UK showed promising signs once more. The Bank of England have remained firm in their belief that inflation will trickle down in Q3 and Q4 of 2023 with the most recent print showing a significant drop-off.

There is no denying the UK economy has remained resilience for the large part, however today’s data will give the Bank of England (BoE) a massive headache. We have seen a bigger than expected drop-off in unemployment, but the Central Bank had stressed prior to the release that the average earnings figure would be crucial. Given the massive beat in average earnings it is unlikely that the BoE will be able to take its foot of the pedal in terms of rate hikes, at least not yet.

The Bank of England did leave the door open to further interest rate hikes and I think it is something they will have to act on following today’s data releases. We obviously have CPI data tomorrow with any print above or in line forecast likely to cement another rate hike in September.


The initial market reaction following the news has seen GBPUSD bounce around 40-pips from the key support area around the 1.2680 mark.

However, GBPUSD on a daily timeframe still remains within the range between the 50 and 100-day MAs resting around the 1.26100 and 1.2760 mark. Yesterday saw an attempt to break below support at the 1.26100 mark but was met with buying pressure which has been the case of late. Sustainable moves continue to elude market participants as risk on-risk off battle continues.

GBPUSD Daily Chart, August 15, 2023

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

Written by Zain Vawda, for DailyFX

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