UK Jobs and Inflation Data in Focus

Analysts expect labour and inflation figures to reinforce arguments for a less aggressive policy, but given Footsie's international composition, uncertainty around whether it benefits the index remains.​

Keeping the Good News Coming

The FTSE 100 Index managed to edge higher on Friday despite pulling back following stronger GDP numbers as traders look ahead to a barrage of economic data this week that is hoped to support further easing. The modest 0.2% expansion in GDP came after two months with no growth, which investors assume means it will leave the door wide open for additional interest rate cuts, with futures pricing in a 93% chance of a 25 basis point decrease the next time the BOE meets. Analysts see corporate investment and household spending being dampened by uncertainty, particularly ahead of the upcoming budget.

As a sign of the expectations, the pound fell to a 1-month low as investors scaled back some of the expectations that the BOE would be the slowest of the central banks to ease policy. Focus now turns first to tomorrow's labour figures as traders look for signs that wage growth is moderating, as it is one of the two main factors often suggested as maintaining inflationary pressure (the other being services inflation).​

Consensus Points to Strength

The consensus forecasts show the UK unemployment rate and average hourly earnings growth to remain unchanged at 4.1% and 4.0%, respectively. Meanwhile, the newer claimant count number is forecast to fall slightly to 15.0K from 23.7K prior, indicating fewer people are seeking unemployment benefits, which implies potential strength for the pound. The service sector was reported to have experienced the strongest growth over the last month.

This week's focus on the domestic economy's potential impact on the FTSE will likely be the release of the CPI figures on Wednesday, when headline CPI is expected to return to the target of 2.0% from 2.2% in the previous month. Meanwhile, core CPI is forecast to continue its gradual decline to 3.5% from 3.6% prior. While the potential for further monetary easing could help domestically-focused UK firms on the FTSE, particularly homebuilders, the large weighting of energy firms may provide a drag. China's underwhelming stimulus announcement over the weekend, which markets highly anticipated, left crude prices trending lower on expectations of cooling demand from the world's second-largest economy.​

Footsie in Triangle Pattern

The FTSE 100 index has formed a narrowing pattern resembling a symmetrical triangle. A break above key swing levels of 8330, 8370 and 8420 may pave the way for further upside towards 8575, as projected by the measured move. Alternatively, if the index moves below crucial support levels of 8180 and 8150, this could open the door to the golden pocket of the 7910-8420 leg at 8110.​

Source: SpreadEx / UK 100

Key Takeaways

UK data this week is expected to reinforce arguments for less aggressive rate cuts by the BOE. Analysts will closely watch Tuesday's employment report for signs of moderating wage growth, which could impact inflation. On Wednesday, inflation is forecast to remain at the 2% target, with core inflation declining gradually. This week's data will be scrutinized for clues about the UK economy and implications for monetary policy.​