The British pound continues to remain well supported today after yesterday’s strong employment figures kept alive the chances that the Bank of England will raise interest rates over the coming months.
The most promising part of the news yesterday was the wage growth figures in April which came in at 3.1 percent which was above expectations for a figure of 3 percent while the unemployment rate remained steady, holding at its lowest level in over 40 years.
Wage growth is currently outstripping inflation which has lead to comments from the Bank of England to hike interest rates to keep inflation sitting around their preferred target of 2 percent.
The central bank has been cautious so far this year in their quest to lift rates due to the uncertainties surrounding Brexit but these strong figures may have tipped their hand
Cutting through the political noise that dominates the column inches currently, sterling received a boost from another decent wage inflation release this morning. As I have suggested before, it was lagging earnings data which stayed the hands of the MPC previously when CPI was testing above 3%. Since this has flipped, and with headline inflation still remaining around target levels, it could be the wage data that tip’s the BoE towards a rate hike sooner than people realize," says John Goldie, FX Dealer at Argentex, a foreign exchange brokerage.
There are already 2 BOE board members who are behind a rate hike or 2 this year and we may see a few more jump on board this week for such a move which should provide some much need support for the pound in the nearest future.
"This is a strong labour market report that bolsters the case of MPC members Andy Haldane and Michael Saunders who recently have re-emphasised the need for gradual increases in interest rates," says Samuel Tombs, Chief U.K. Economist at Pantheon Macroeconomics.
"With the labour market unlikely to weaken suddenly soon and government policies set to remain supportive of faster wage growth, the MPC can’t afford to ignore the constant inflation pressure now emitted by the labour market." He added.
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