UK labour market data remains very healthy

Sterling has been given a boost in early European trade from the latest jobs data, which showed unemployment remaining at a 44-year low and earnings growth staying above 3%.

At a time when the economy is slow, global risks are building and Brexit is unresolved, this data is quite remarkable and very encouraging. Of course, its resilient to Brexit uncertainty and everything else may not last in the event of a broad slowdown or no-deal, but that’s no reason to be discouraged.

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It also leaves the Bank of England in a very curious position, not that you’d guess so from a market pricing perspective, with a rate hike entirely priced out for the next year and no move at all the most likely outcome.

Policy makers may well be happy to sit back and wait until October to pass before deciding what to do next but in the unlikely event that we exit with a deal, they may be left seriously considering whether a hike is appropriate, especially given the current level of interest rates. Of course, there’s a lot of if’s here and plenty can change over the next four and a half months.

Clearly traders aren’t feeling too optimistic which is why we find sterling trading not far from its lowest levels this year. Of course this largely relates to the more pessimistic outlook on Brexit, with a number of the more favoured Conservative candidates – including the frontrunner – preferring a harder exit and seemingly perfectly comfortable with no deal.

It will be interesting to see how we trade around 1.28, with a break above potentially being a bullish signal in the near-term. That said, the Conservative leadership race may continue to be a drag on the pound so gains higher may rely more on dollar weakness that sterling surges.


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