UK Jobs, GDP, Critical for BOE Rate Outlook

Following the ECB's recent interest rate cut, there is increasing pressure on the BOE to follow suit, with investors watching employment data for signs of normalisation.

The Slow Road to Recovery

Central banks have generally been moving towards a more accommodative policy this month. While the BOE will meet on June 20th, it is expected to stay on the sidelines given the ongoing campaign for the July 4th general election. However, questions remain over whether the bank will come around to pulling the trigger at the start of August.

The primary obstacle has been high inflation in the services sector, driven by wages consistently exceeding inflation. However, slowing hiring as the economy grows could indicate that the labour market aligns with BOE's expectations prior to moving to an easing policy. On Tuesday, investors will seek continued signs that wage growth moderates, showing easing in the labour market. Unemployment is projected to remain at 4.3%, while the claimant count is expected to fall slightly to 4,000 from 8,900 previously. Despite anticipated stagnation, average earnings, including bonuses, are anticipated to grow slowly to 5.5% from 5.7%.

Not Enough To Push Inflation

The UK is scheduled to release its monthly GDP figures for April following jobs data. Economists forecast that GDP growth will slow to 0.2%, down from 0.4% in March. While this shows a modest pullback, GDP is projected to increase by 1.0% over 2024 before accelerating to 1.9% in 2025. Typically, economic expansion contributes to rising inflation. However, the BoE seems unconcerned for now, given the still sluggish pace of growth.

Markets are currently focused on the likelihood of an interest rate cut. A recent survey found many economists forecasting a cut as early as June, but most expect it in August. This was surveyed before Prime Minister Rishi Sunak set the next general election date on July 4th. Since then, the markets have started to price in rate cuts starting in September. This helped boost the value of the pound in May and early June. However, softer-than-expected economic data could reverse this trend, especially if the consensus shifts to agree with analysts that August is a more realistic time for lower rates.

Cable Eyes Range Support

Cable's drop to 1.27 after failing to break 1.28, combined with nearing the lower channel of the ascending trend, indicates potential consolidation at the bottom of the range. Breaking swing support could allow a decline to 1.2635, exposing 1.2540. Alternatively, clearing the top sets sights on 1.2850.

Key Takeaways

Following the ECB's cut, there is increasing pressure on the BOE to follow suit, with investors watching UK employment data for signs of moderation as slowing hiring indicates the labour market may be aligning with the BOE's expectations prior to an easing of policy. Markets are currently focused on the likelihood of a cut in the UK, with most analysts now expecting it in August or September following the announcement of the next general election on July 4th and softer economic data, which could see the consensus shift to an earlier timeframe if growth slows.