UK JOBS4 min read
UK jobless rate falls to 4.7%, backing a BoE hike
UK unemployment dropped to 4.7% in the three months to August against a 5.0% forecast, regular pay growth edged up to 3.7%, and sterling rose to $1.3352.
UK unemployment fell to 4.7% in the three months to August, below the 5.0% forecast, and employment rose 102k; sterling gained half a cent to $1.3352.
A tighter labour market and regular pay growth of 3.7% strengthen the case for a Bank of England rate hike next month, which supports the pound.
The Bank of England decides in November and the Chancellor’s budget is due next week; the ONS warns its survey data have quality problems.
The trader’s angle
Falling joblessness and firmer pay make it harder for the Bank of England to look past inflation, which supports sterling and raises the risk of higher UK rates.
The chart
Look at how sterling moved against the dollar on the morning of the release.
GBP/USD
Unemployment rate
4.7%
downvs 5.0% forecastThree months to August. The prior reading was 4.9%, and Sky calls it the lowest since July last year.
Employment change
+102k
upvs +5k forecastThree months to August, far above forecast, after +67k previously.
Regular pay growth
3.7%
upvs 3.6% forecastExcluding bonuses, three months on a year earlier. The prior reading was revised to 3.6%.
GBP/USD
$1.3352
up+0.5 centLevel reported by The Guardian at 09:03 UTC.
Central banks raise rates to slow inflation. A tight labour market, with low unemployment and rising pay, can keep prices rising because employers pay more and households keep spending. So strong jobs data raise the odds of a rate hike.
Higher expected rates tend to lift a currency because they raise the return on holding its assets. That is why good UK data can push sterling up.
What happened
The ONS reported that the unemployment rate fell to 4.7% in the three months to August. Forecasts were for 5.0% and the previous reading was 4.9%. Employment rose by 102k against a forecast of 5k.
Regular pay, excluding bonuses, grew 3.7% on a year earlier in the three months to August, above the 3.6% forecast. Pay including bonuses rose 3.7%, slightly under the 3.8% forecast. Payrolls for September rose 13k, after a revised +1k the month before.
Why it matters for traders
The figures support the case for a Bank of England hike next month, according to Sky News and Bloomberg. investinglive says they give the more policymakers room to consider another increase.
Sterling rallied by half a cent to $1.3352 by 09:03 UTC. A Guardian-reported market comment said the data caught traders on the hop and prompted a scramble to add pound exposure. Finimize notes that firmer pay could also show up in fixed-rate mortgage quotes before the Bank meets.
How it ripples through markets
From jobs data to sterling
- 1
Unemployment falls to 4.7%
Employment rises 102k and regular pay growth edges up to 3.7%, both better than forecast.
- 2
Labour market looks tighter
Fewer idle workers and firm pay mean less slack, which can keep services prices and inflation higher.
- 3
Hike odds rise
upBoE rate expectationsThe Bank of England has more reason to raise rates to hold inflation down, so a November hike looks likelier.
- 4
Sterling is more attractive
upGBP/USDHigher expected UK rates raise the return on pound assets, so investors buy sterling.
- 5
Short-dated gilt yields likely rise
up2y gilt yieldShort follow expected , so higher rate expectations likely push them up.
What to watch
The ONS repeats that the Labour Force Survey has quality issues, so it is hard to tell how much of the improvement is real. Traders will want the next releases to confirm the trend before treating one strong print as a turning point.
The Bank of England decides in November. The Chancellor, John Healey, delivers his budget next week; the Guardian describes the data as a boost for the government ahead of it.
Academy lessons for this story
- F8Central banks and the policy rateExplain how a central bank sets interest rates, read the market’s odds of a move, and match each of its tools to a problem.
- R10What moves rates: event daysSay which news moves short-term yields and which moves long-term ones, and split a day’s move into rate expectations and everything else.
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Sources
- Bloomberg — UK Jobs Data, Wage Growth Strengthens Case for Bank of England Rate Hikes
- Sky News — UK unemployment rate falls to lowest level since July last year
- Bloomberg — UK Unemployment Drops Ahead of Healey's Budget
- The Guardian — Revolut hit by service disruption as Google Cloud services suffer technical problems – business live
- investinglive.com — UK unemployment rate falls to 4.7% as jobs rebound, keeping BOE rate hike bets intact
- finimize.com — UK Pay Growth Firmed Up As The BoE Weighs A Hike - Finimize
Written by the JuniorTrader desk with AI assistance, from the reports above. Intraday levels are snapshots and may have moved since. Not investment advice.
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