Unemployment Rate Remains At Lows
Today, the Office for National Statistics released the latest UK earnings and employment data. It highlighted resilience in labor market conditions despite the ongoing uncertainty around Brexit. UK unemployment remained unchanged at 3.9% in the three months to February, the lowest reading since November 1974.
This was below the forecasted 4% and was driven by a 76.1% employment rate, which was higher than the 75.4% figure recorded a year earlier. This employment rate is now the joint-highest recorded figure. The economic activity rate came in at 20.7%, lower than the prior year’s 21.2% reading. This marked the joint-lowest recorded figure.
Wage Growth Remains Firm
Earnings data was also upbeat. Average weekly earnings (excluding bonuses) remained unchanged at 3.4%. This was in line with expectations. The figure including bonuses rose to 3.5%, again, in line with expectations.
This data makes for a frustrating reading for the Bank of England. It serves as even further evidence of economic strength in the UK. However, the current Brexit uncertainty means that the bank is unable to proceed with the tightening program which it has said is its preferred path.
Recent data has shown unemployment hitting its lowest levels since the 1970s. And wage growth is rising at its fastest pace in a decade. Meanwhile, inflation has recently risen again, unexpectedly.
At the BOE’s latest meeting, policymakers said that the “possibility of further cliff-edge uncertainties that could have a significant effect on [business] spending as any new deadline approached”.
The BOE stated that if Brexit can pass smoothly with a deal agreed in parliament, then further rate increases would likely be necessary. However, the bank also warned that if the UK does not reach an agreement and leaves without a deal, then an emergency rate cut could be warranted.
Ultimately, the BOE explained:
“The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal.”
Brexit Deadline Extended to October
This is a strange time for UK politics. We should currently be approaching the first month of the UK being out of the EU considering the original March 29th exit date. However, following a temporary extension to April 12th and a subsequent request for a further extension, the UK is currently not due to leave the EU until October 31st.
While many have welcomed the extension with relief, we have not seen much movement in GBP. It remains very clear to traders that the political gridlock stopping a deal from happening has a long way to go before being resolved. As such, the market is closely monitoring headlines around Brexit. However, given the level of false hopes and false starts, it will now take something concrete to cause a significant shift in price action.
While news of a longer Brexit extension has not seen much upside action in GBP, UK equities have enjoyed a different reaction. The UK100 is now once again challenging 2019 highs around the 7479.3 level, having once again broken above the bearish trend line from last year’s highs. The UK is retaining access to the single market, for now, meaning there is no need for investors to move capital. And with the BOE on hold, for now, UK equities have the green light for higher prices. Above the 7479.3 level, the next resistance level to watch is the 7555.3 level. Any retracement lower from here should find support at the 7363.3 level.