GBP: Sterling remains under pressure as inflation and wage growth converge

Labour data from the UK proved to be a bit of a mixed bag, keeping the selling pressure on sterling (pound, GBP).

As expected the headline unemployment rate remained steady at 4.8 percent – even a shift of just 0.1 percent requires a large change actual numbers. The figure that is most closely scrutinised when deciphering trends is the claimant count, which measures the number claiming unemployment benefits. This number fell against the grain, having been forecast to grow by around 1,000. Instead it was revealed there were 42,400 less people claiming benefits in January compared to December. It should be noted that this number is volatile due to the continued roll-out of a new universal credit benefit system, but on face value this was a positive number for the UK.

Earlier in the week, it was revealed that inflation had pushed higher to just below the Bank of England (BoE) target rate. Yesterday, data showed that in the three month up to 31st December 2016, wage growth was at 2.6 percent – this is above inflation. The figure slowed from 2.8 percent last month, which means the pace of inflation and wage growth are now converging – a concerning development. Inflation is expected to continue to rise and hit 2.8 percent next year according to the BoE. If wage growth continues to stumble these two number will cross, resulting in a reduction in household incomes. This would have negative knock-on effect of consumer spending.

It’s a quiet day in terms of economic data from the UK. In the meantime political developments will continue to take effect in the background, which could impact the pound (GBP). The next big release from the UK is retail sales data tomorrow, which is expected to reverse some of the negative readings that we saw last month.