UK unemployment rate falls to a 42-year low

August 21, 2017

The UK unemployment rate fell to a 42-year low in the three months to June, to 4.4%. The absolute figure was down 57,000 to 1,484,000 following an increase in employment by 125,000. Further good news was seen in the earnings figures, which showed an acceleration in annual pay growth to 2.1% from 2% in May. While real wage growth remains negative, the pressure is easing and on a twelve-month view may be positive. Higher employment and wage growth will be supportive for government finances and companies exposed to consumer spending.

UK consumer price inflation (CPI) came in lower than expected in July. The annual rate of 2.6% equalled June’s figure and was below the 2.7% anticipated by analysts. Lower oil prices helped keep the rate suppressed, although clothing, food and electricity prices all contributed positively. Lower than expected inflation sent the pound falling in value against the Euro and US dollar as the potential for an interest rate rise deteriorated. A lack of higher inflation will reduce the pressure on the Bank of England to raise interest rates. However, monthly data can be volatile, and inflation is still expected to peak at around 3%.

Elsewhere, the European Central Bank (ECB) has raised concerns over the recent strength of the Euro and its current trajectory. The comments were seen as a slight change in stance for the ECB, where they might be willing to slow their reduction of quantitative easing to help maintain a weak Euro. The currency has risen by over 11% against the dollar since April. However, this has been in part due to a weakening dollar as well as an improving economic performance form the Eurozone. The ECB’s comments have been successful in halting the Euro’s rise in the short-term; however, it is likely to continue to be supported by an improving economy, growing employment and more normalised inflation.

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UK and German revised GDP figures for quarter two will be announced this week along with Japanese inflation on Friday.