UK unemployment report preview

The UK is in a major political trouble. In the recent election, Prime Minister Theresa May’s Conservative Party fell short of an outright majority in the Parliament and is being forced to govern a minority government with the support from Ireland’s Democratic Unionist Party. In addition to that, the time is running out for the Brexit negotiations, which needs to be completed before March 2019. Several economic dockets released recently shows that the UK economy might finally be losing some steam, especially the housing sector. The first quarter GDP was much weaker at just 0.2 percent q/q, much lower than other European peers. Bank of England’s (BOE) inflation report forecasted softening of inflation. It is very important to keep on assessing the economic well-being to understand the impact of this ‘first-time ever’ event.

One of the key measures of economic wellbeing is the unemployment report, which will be released from the United Kingdom today at 8:30 GMT. The reports released so far have shown no devastating impact from the Brexit referendum outcome.  For today, the expectations are similar.

Below is the preview of the report -

• As of now, the unemployment rate in the UK stands at 4.6 percent and median estimate suggests it is likely to remain unchanged.

• So, the major focus will be on earnings growth, since that will be the measure of economic wellbeing.

• Moreover, a positive wage growth should help to downsize the fear of a slowdown in the economy heading towards Brexit negotiations. It will be a nice evidence that companies are ready to increase wages even in the face of an exit from the European Union. BoE Governor Carney said that the central bank would be monitoring the level of income closely, especially since the referendum aftermath upbeat economic performance was due to consumer spending and credit. Income levels directly affect these two components.

• Recently, there has been some weakness in the economic dockets such as the housing reports and the PMI reports. So, the market participants would be closely watching whether the earnings report reflect the same or not.

• After declining since October 2015 from 2.8 percent, wage growth has dropped to just 1.8 in February last year but recovered since then. Last month, earnings grew by 2.3 percent excluding bonus and by 2.4 percent including it.

• Today earnings growth is expected to be at 2.4 percent including bonus and by 2.3 percent excluding it.

The data release is not likely to have any major impact unless the income growth surpasses 2.7 percent on the upside and or falls below 1.7 percent to the downside.  The political uncertainties are the current driver of the pound. The pound is currently trading at 1.278 against the dollar.