UK Unemployment Rate Stagnant, GBP/USD Stable

The latest employment data points to a stagnant UK unemployment rate and high wages growth.

The GBP/USD rate remains within a very narrow range around 1.3555 in early trading in the European session today (15/February). The latest employment data points to a stagnant UK unemployment rate and rapid growth in wages, supporting expectations of a rate hike next month. However, multiple factors are still weighing on Sterling.

GBP/USD Daily chart via TradingView

The UK's December 2021 unemployment rate held at 4.1 per cent, in line with consensus expectations and the previous period's report. Meanwhile, the average income plus bonus index increased 4.3 percent. That growth was faster than the 4.2 percent pace as of November 2021, and detracted from consensus forecasts for a slowdown to 3.8 percent.

Jobless claims data (Claimant Count Change) for January 2022 completes this set of good news. The number of jobless claims shrank by 31.9k, better than the consensus forecast of a 28.0k decline.

This accelerated wage growth coupled with reduced jobless claims is consistent with the notion that the UK labor market is becoming tighter. The data also aligned with expectations of another UK rate hike in March 2022, by at least 25 basis points.

Regardless, a number of analysts continue to maintain the view that market expectations of a 2022 UK interest rate hike are still going too far. Some economists have also begun to oppose the BoE's continued interest rate hike discourse. This is because an increase in interest rates that is too large in the current situation will actually put more pressure on the people who are facing soaring prices for energy and various other necessities.

"Very high inflation will make 2022 show the biggest squeeze on household finances in more than a decade," said Andrew Goodwin, UK Chief Economist at Oxford Economics, "While the MPC (BoE) looks set to raise interest rates aggressively in the coming months forward, we think this response is unnecessary."