UK Jobs Market Heats Up: Low Chance of BOE Rate Cuts Amidst Strong Wage Inflation User

GBP: UK jobs markets stays hot

Data out of the UK this morning point to ultra-tight conditions in the jobs market, as unemployment unexpectedly fell again to 3.8% and average weekly earnings jumped from 5.8% to 6.5%.

Our UK economist discusses in this article why sticky UK wage inflation means very low chances of Bank of England rate cuts before 2024. We are less convinced this will lead to several more rate hikes by the BoE: markets are currently pricing in 100bp of tightening to the peak, but we struggle to see more than two 25bp increases (in June and August).

We keep highlighting the risks for sterling of a dovish repricing in the BoE rate expectations down the road, but with data pointing consistently to more tightening recently, it’s hard to buck the bullish GBP trend in the near term. Still, GBP/USD may well default to being driven by the dollar leg as soon as the US CPI risk event kicks in.