The UK unemployment rate recently dropped unexpectedly from 4.4% to 4.2%. This drop surprised many who had anticipated an increase to 4.5%. However, this seemingly positive news hides underlying issues in UK job market. Despite the decrease in the unemployment rate, restrictive monetary policies have slowed down hiring across the country.
Although average earnings have continued to decline, the drop was slower than expected. The data showed a 5.4% drop compared to the anticipated 4.6%. Moreover, the claimant count for July raised concerns, with the number of people applying for unemployment-related benefits soaring to 135,000. This is a significant increase from previous figures, which were consistently under 10,000.
In June, employment rose by 97,000, surpassing the conservative expectation of a 3,000 increase. However, the rise in unemployment benefit claims in July has reached levels not seen since the global financial crisis. As a result, the recent strength of the British pound might be short-lived. Tomorrow's CPI data, expected to rise to 2.3%, could further impact the pound's performance.
Sterling saw a boost following the UK job market report. A tighter job market could reignite inflation concerns, especially with the Bank of England forecasting a rise in price levels. The GBP/USD pair tested a significant level of resistance at 1.2800 following the report. If inflation data exceeds expectations, this could lead to further bullish momentum for the pound.
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Discover the mixed signals in the UK job market as the unemployment rate unexpectedly drops. Learn about the impact on sterling.
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