The most recent UK labor market data revealed a blend of positive and negative indicators. Despite early signs of a slowdown, there was a noticeable growth in employment, surpassing the projected figure of 160k, as the number of individuals employed in the UK rose by 182k during the three-month period ending in March 2023. This increase was predominantly fueled by part-time workers and individuals working as self-employed.
The quarterly unemployment rate in the UK increased by 0.1%, reaching 3.9%. This rise was primarily based upon individuals who had been unemployed for over 12 months. It marks the highest level since the period between November 2021 and January 2022. Furthermore, between February and April 2023, the estimated number of job vacancies decreased by 55,000, totaling 1,083,000. This decline represents the 10th consecutive quarterly decrease in vacancies, reflecting uncertainty across various industries. Economic pressures were cited by survey respondents as a hindrance to recruitment. The report from the Office for National Statistics (ONS) also revealed that the UK experienced a loss of 556,000 working days due to strikes in March.
The UK's average earnings, including bonuses, matched expectations, standing at 5.8%. Simultaneously, the public sector experienced an average growth rate of 5.6% during the period of January to March 2023. This level of growth in the public sector had not been observed since August to October 2003 when it reached 5.7%.
The UK's economic outlook has become rather mixed following a series of impactful data releases in the past two weeks. Inflation remains uncomfortably high, but the Bank of England (BoE) has made upward revisions to its growth forecast. However, the recent GDP growth data for February and March revealed a noteworthy slowdown and contraction, respectively.
Although the UK economy has largely shown resilience, the recent GDP figures raise concerns. Retail sales have also experienced a decline, indicating that consumers are tightening their spending as the cost of living remains a pressing issue. Monitoring GDP data and UK inflation in the upcoming second quarter will be crucial.
The BoE has left the possibility of further interest rate hikes open. However, considering the bank's own inflation expectations, a wait-and-see approach may be warranted. Central banks worldwide, including the BoE, will aim to avoid excessive tightening as the consequences of recent rate hikes become evident.
After the news was released, there was an immediate market reaction leading to a decline of approximately 50 pips in GBP/USD. This decline is unexpected considering the recovery observed yesterday. The strength of the slide following the data release has been influenced by a slightly stronger USD in the morning.
On a daily timeframe, GBP/USD is currently attempting to break below the ascending channel, which could potentially trigger a deeper retracement towards support levels indicated by the 50-day and 100-day moving averages at 1.2380 and 1.2260, respectively. It is important to closely monitor any developments concerning the US debt ceiling, as it could significantly impact the USD and consequently affect GBP/USD.
