GBP EUR Slumps Despite Higher UK Employment

GBP EUR Slumps Despite Higher UK Employment

The GBP EUR exchange rate was -0.73% lower despite a higher employment figure for the UK economy. The drop in the pound sterling is related to the underlying wage figures, which showed the largest drop in twenty years, playing into consumer confidence and spending.

The GBP to EUR was trading below 1.1600 and a close below that level on a weekly basis would be the first since May of 2021.

UK wages fall at the fastest rate in twenty years

Inflation rising at current levels saw prices rising more than twice as fast as wages in April, creating a drop in real wages at the fastest pace in more than 20 years.

Real wages and salaries before bonuses dropped by 4.5pc in April compared to the same time one year ago, according to the Office for National Statistics.

The latest statistics highlight the toxic dilemma for the Bank of England on Thursday. The Bank will meet to announce its latest monetary policy plans, and many expect them to hike interest rates again. Monday’s GDP figures show a slowing economy and that would urge caution. But the wages problem shows that inflation is eating into salaries and that would also hurt the economy in the longer term.

Andrew Bailey, the BoE Governor, has said that he is raising interest rates in order to stop employees from chasing after pay rises in the same way as the 1970s inflation crisis.

Vacancies were also at historically high levels with job ads at 1.3m, which was only slightly lower than the 1.35m record in April.

Job numbers were higher in the UK economy during May

Despite the issue with wages, employment numbers were better than expected. The actual number for employment came in at 177k compared to the 105k projected. But that still saw the unemployment rate rising to 3.8% from 3.7% last month. Analysts had expected a reading of 3.6%.

Sam Beckett, head of statistics for ONS said: “Today’s figures continue to show a mixed picture for the labour market. While the number of people in employment is up again in the three months to April, the figure remains below pre-pandemic levels.”

 

“Moreover, although the number of people neither in work nor looking for a job has fallen slightly in the latest period, that remains well up on where it was before Covid-19 struck,” he added.

“At the same time, unemployment is close to a 50-year low point and there was a record low number of redundancies. Job vacancies are still slowly rising, too. At a new record level of 1.3 million, this is over half a million more than before the onset of the pandemic.”

In eurozone data, Germany’s inflation rate met expectations at 7.9%, but still a steep climb from last month’s 7.4%.

Germany’s ZEW sentiment figures were also mixed with a drop to -28 from -29.5. Furthermore, the number was down from -34.3 in the previous month.

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