British Pound: Soft UK jobs but supportive mix - BBH

Brown Brothers Harriman’s (BBH) Elias Haddad describes United Kingdom (UK) June labor data as soft, with unemployment stuck at 4.9% and private sector regular pay growth slowing to 2.8% year-on-year. Haddad judges current market pricing of 60 bps of Bank of England (BoE) hikes over 12 months as too aggressive, yet believes the UK’s favorable growth-inflation mix still offers British Pound (GBP) support for now.

Labor slack tempers BoE expectations

"UK June jobs data was soft and indicative of ongoing labor market slack. The unemployment rate was unexpectedly unchanged at 4.9% for a third straight month in June. Consensus and the BoE had 4.8% penciled-in."

"Moreover, the policy-relevant private sector regular pay growth slowed to 2.8% y/y in June (lowest since October 2020) vs. 2.9% in May. That matched consensus and the BoE’s projection."

"The swaps curve continues to price-in 60bps of BoE rate hikes in the next twelve months. That’s too aggressive in our view given the UK’s negative output gap, and leaves rate-hike expectations vulnerable to a dovish repricing. For now, the UK’s favorable growth-inflation mix offers GBP good support."