British pound sterling: UK currency advances on the back of 'gravity defying' employment data - Thanks Olympics!

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Published on Wednesday, 15 August 2012 10:28

Written by Sam Coventry

International Money Transfers at our sister site

"The latest labour market data show improvement across the board, which is remarkable given the extended weakness of the economy" -  Howard Archer at IHS Global Insight.

The pound sterling (Currency:GBP) has this morning solidified recent gains on the back of consensus-beating UK employment figures.

The pound euro exchange rate is 0.18 pct up on yesterday night's closing level, GBP-EUR is at 1.2742 at 11:13 AM.

The pound dollar exchange rate is 0.04 pct in the red at 1.5671.

The pound to Australian dollar exchange rate is 0.23 pct higher at 1.4973.

UK unemployment has fallen to 8 pct, while the number of people claiming jobless benefits fell by 5,900 in July.


Youth unemployment is also down - in the 16-to-24 age group there were 1.01 million people unemployed, down 4,000 from the three months to March.

Howard Archer at IHS Global Insight says the data "defy gravity":

"The latest labour market data show improvement across the board, which is remarkable given the extended weakness of the economy. While this is hard to explain, it is evident that ongoing restrained earnings growth as well as significant increases in part-time jobs and self-employment is helping to keep unemployment down. In addition, the holding of the Olympic Games appeared to provide at least a temporary boost to employment in the latest figures given the stronger performance of the London labour market."

There were more supportive data yesterday in the form of inflation. Remember, higher inflation means there is less likelihood that the Bank of England will cut interest rates and increase quantitative easing - this is ultimately supportive of the pound.

UK inflation unexpectedly accelerated in July for the first time in four months.

CPI rose by 2.6% y/y (consensus 2.3%), while RPI rose by 0.1% m/m (consensus: -0.2%) The July numbers were lifted by exceptionally strong airfares (up 21.7% on the month) and also because clothing and footwear prices did not fall as much as they usually do in July.

Adam Solomon at TorFX says:

"Yesterday's upside surprise will provide ammunition to the likes of Spencer Dale who believe that inflation will be sticky.

"That said, our UK economists do not believe that the upside surprise is large enough to dissuade the committee from providing another boost to the economy either with QE or a rate cut - or for that matter, both. Economic growth is still incredibly weak and the MPC continues to believe that conventional QE has a material impact on economic growth."