UK Unemployment Dips Unexpectedly in Sign of Strong Economy

Tom Rees and Andrew Atkinson
Tue, Aug 13, 2024, 6:46 AM EDT • 6 min read

(Bloomberg) -- UK unemployment fell unexpectedly after companies hired at the strongest pace since November, a sign of underlying strength in the economy that complicates the Bank of England’s shift toward lower interest rates. ... The jobless rate fell 0.2 percentage points to 4.2% in the three months to June, the Office for National Statistics said Tuesday. Economists had expected a small increase. Employment surged by 97,000, much stronger than the 3,000 increase that forecasters had expected. Wage growth slowed in line with expectations.

While economists questioned the reliability of the ONS’s Labour Force Survey, which underpins the unemployment data, investors interpreted the figures as a potentially inflationary sign the economy is picking up momentum. While the BOE has signaled it’s ready to cut borrowing costs again, it remains on guard against evidence that upward pressures on prices will stick around.

The headline unemployment rate is below the BOE’s forecast for 4.4% in the second quarter. The pound jumped 0.3% to trade above $1.28 on Tuesday, making the UK the best performing currency in the Group of 10 nations. It contrasts with the situation in the US, where weak jobs data rattled markets in recent weeks. Figures due later this week are likely to show robust economic growth in the UK and the first increase in inflation this year.

“Investors may raise questions about a weak US labor market and anemic euro area GDP growth, but the UK seemingly faces neither problem,” said Andrzej Szczepaniak, a senior economist at Nomura. “Still strong labor market data in the UK as well as still strong activity data support our house view of divergence between the Fed and BOE.”

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