Earlier this morning, the Office for National Statistics (ONS) released the latest UK earnings and employment data, and it was largely a mixed print overall.

UK Unemployment Jumps to 4.2%

UK unemployment climbed to 4.2% from December 2023 to February 2024, up from 3.9% in the three months to January 2024. This marks the largest uptick since the COVID-19 pandemic and is the highest rate since August 2023, which was just before the UK began entering a mild technical recession. However, a key point to keep in mind is that the market remains sceptical of this release and the employment data, given the issues with survey respondents. Consequently, much of the focus remained on wage numbers today.

Wage Growth Hotter than Expected

The UK’s average wage growth data was higher than expected for regular pay and pay, including bonuses (3M/YY). Regular pay was 6.0% higher, up from 5.8% expected but lower than the 6.1% prior release. Pay, including bonuses, matched January’s print, up 5.6%, though slightly higher than the 5.5% median estimate.  The monthly change in employment (PAYE jobs) fell by -67,000; however, this is a provisional estimate and, according to the ONS, ‘is likely to be revised when more data are received next month’. Vacancies fell by 13,000 for the quarter to 916,000, marking its 21^st consecutive declining period, though it remains above COVID pandemic levels.

Knowing that the Bank of England’s (BoE) focus is on pay, the release could be viewed as marginally hawkish. However, the sharp uptick in unemployment and the drop in employment suggests a softer labour market that could eventually weigh on wage growth further down the road and prompt the BoE to cut rates. However, the timeline for this is still debated.

Swaps Pricing: Two Rate Cuts Priced in for the Year

According to the overnight index swaps market (OIS), BoE rate pricing changed little following the release. You will recall that investors have aggressively scaled back bets of rate cuts this year, similar to the Fed. For the year, the OIS curve is pricing in -48bps of easing; June’s policy meeting still has approximately -10bps of cuts priced in, with August at around -21bps (which saw a modest drop following the release from -23bps).

Overall, the market impact following today’s release was mild. GBP/USD immediately dropped to a low of $1.2409, though pre-announcement levels were swiftly retested; we are pretty much unchanged in early London.