Pound Sterling declines as UK jobless rate accelerates

The Pound Sterling slumps below 1.2800 against the US Dollar after the release of the weak UK employment data.

UK Unemployment Rate jumped to 4.3%, while Average Earnings grew faster than expected in the three months ending September.

Investors await the US inflation data for fresh interest-rate guidance.

The Pound Sterling (GBP) weakens against its major peers on Tuesday after the employment data from the United Kingdom (UK) showed loosening labor market conditions in three months ending September. The Office for National Statistics (ONS) reported that the ILO Unemployment Rate rose to 4.3% from 4.0% in the three months ending August, higher than estimates of 4.1%. In the same period, UK employers added 219K new workers, fewer than the former release of 373K.

Signs of slowing labor demand have weighed on the British currency even as not all components of the release were GBP-negative. Average Earnings data, a measure of wage growth, grew at a faster-than-expected pace in the three months ending September. Earnings excluding bonuses rose by 4.8%, higher than estimates of 4.7% but slower than the former release of 4.9%. Average Earnings Including bonuses accelerated to 4.3% against expectations and the prior reading of 3.9%.

Bank of England (BoE) officials have been closely tracking wage growth when deciding on interest rates as it is a major driving force to inflationary pressures in the service sector. The policy-easing cycle by the BoE has been more gradual compared with other G-7 nations, and higher service inflation is the key reason behind this approach.

It will be interesting to see whether traders increase BoE rate cut bets due to the slowing job market or pare them amid faster-than-projected wage growth. Currently, traders are slightly bent towards another interest rate reduction by 25 basis points (bps) in the December monetary policy meeting. The BoE also reduced its key borrowing rates by 25 bps last week, but favored a more gradual policy-easing approach.

On wage growth, BoE Chief Economist Huw Pill said that pay growth remains quite sticky at elevated levels that are hard to reconcile with the bank's inflation target of 2%," at the conference organized by Swiss bank UBS. Pill emphasized the need to consider a higher interest rate scenario for stabilizing the economy, which has not been the base case in Britain.