U.K. employment gains rise in August, jobless rate likely to drop further down in months ahead

The upwardly surprise to U.K. inflation, which raised expectations of more hawkish signals from the MPC later this week, saw financial markets react, with sterling rising and Gilts falling, noted Daiwa Capital Markets Research. However, the labor market figures released today gave reason to pause for thought, especially with average weekly earnings growth in July coming in softer than expected at 2.1 percent 3M/Y, unchanged from the previous month and consistent with its average since the beginning of the year.

With inflation having accelerated rapidly and nominal wage growth stagnating, in real terms earnings therefore continued to follow a downtrend. Indeed, real wages dropped 0.4 percent 3M/Y, after rising by about 1.5 percent year-on-year in the run up to the referendum. This weak wage growth was despite the fact that jobs growth continued to be quite strong.

In the three months to July, employment rose 181k three month-on-three month, the most rapid pace of rise since the end of 2015, taking the employment rate to 75.3 percent, the highest level on record. This signified that the headline jobless rate dropped slightly from 4.4 percent to a new 42-year low of 4.3 percent, further below the 4.5 equilibrium rate estimated by the Bank of England.

Given that the vacancy rate stays elevated, employment appears set to continuing rising in the months ahead, possibly pushing the jobless rate further down, stated Daiwa Capital Markets Research.

At 18:00 GMT the FxWirePro's Hourly Strength Index of British Pound was neutral at 32.2004, while the FxWirePro's Hourly Strength Index of US Dollar was slightly bullish at 68.1666. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

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