This week sees a host of data coming out of the UK which will provide some important insight into what the BOE (Bank of england) will decide to do at its rate decision next week. Markets appear to be hoping that it will accelerate its easing program given slow economic performance, and the ECB being way ahead in the cutting game. But that requires the data to keep supporting that trend.
The last BOE (Bank of england) meeting was quite contentious, with a three-way split between those who wanted to hold, and those who wanted even more cuts. One of the factors that might have been in play was the ONS’s error in overstating inflation in May. If inflation is on track to decline as the economy remains slow, then the consensus towards easing could get more firm.
The Labor Markets Problem
What could be an obstacle againsts further easing is if the labor market remains persistently tight. Inflation pressures for job wage growth has been repeatedly cited by BOE (Bank of england) officials as a reason to go cautious with the cutting. Though labor data can be a lagging indicator, and it might be close to showing the weakness that would be expected given the slow growth indicators.
If the UK economy surprisingly shows that it is picking up, then the pound could gain more strength. This has been the case lately, where British data has outperformed economists’ expectations. Trades are still waiting to see if there will be a negative turn of events with the effects of tariffs, as well.
As the Data Comes Out
First is the release of labor data on Tuesday, with the unemployment rate expected to stay unchanged at 4.5%. But indications of easing in the jobs market might be seen in the components. The average earnings (including bonus) growth rate is expected to continue to slow to 5.4% from 5.5%. Meanwhile the employment change is seen at +80K, down from +112K reported a month earlier.
This data is all for the month of April, in the immediate aftermath of the big tariff declaration. That could temper the market reaction a bit, as softness in the jobs market would be expected. However, if wage pressures continue to decline, the expectation is that wages will have less of an impact on inflation.
The Slowing Growth?
Then on Thursday is the release of UK GDP figures. Economists have been constantly surprised by the relative outperformance of the British economy. But, consumers having more income as wage pressure remains solid is likely to contribute to economic resilience at the very least. Now that wages are starting to grow at a rate closer to inflation, then the economy could start to show some signs of exhaustion. Particularly if the growth seen earlier in the year was due to businesses front-loading activity ahead of the expectation of disruptions from tariffs.
The consensus is for April UK GDP to show a monthly growth rate of 0.1%, down from 0.2% prio. This would pull down the rolling three-month average to 0.6% from 0.7% prior. The British economy is expected to show growth despite an increase in the trade deficit during that period. The pound has been trending higher for over a week now, so now traders need to see if the data beats and keeps the trend going. Or a miss could provoke a short-term correction.
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