Sterling drops after data shows UK job market cooling

By Joice Alves

LONDON (Reuters) – Sterling fell on Tuesday after data showed that growth in British workers’ regular pay slowed from a previous record high and job vacancies also declined, with a softer labour market boosting the chance the Bank of England (BoE) will hold rates unchanged.

Sterling fell 0.4% against the dollar to $1.2169, moving towards a one-week low hit last Friday.

It was down 0.4% against the euro at 86.75 pence, just off an almost two-week low touched on Monday.

In a sign that the labour market is losing momentum, job vacancies declined and British average earnings, excluding bonuses, were 7.8% higher than a year earlier during the three months to August, down from an upwardly revised 7.9% in the three months to July, marking the first such fall since January.

The publication of some labour market data, including the unemployment rate, was delayed until next week.

The BoE is keeping a close eye on the labour market – especially earnings figures – as it tries to gauge whether it needs to resume raising interest rates, having opted to keep them on hold in September after 14 hikes in a row.

“The pound has suffered sharp losses this morning, following the release of annual earnings data that saw wage growth outstrip inflation for the first time since October 2021,” said Joshua Mahony, chief market analyst at Scope Markets.

“Nonetheless, with the BoE undoubtedly concerned at the rise of wages over recent months, today’s decline eases concerns that we could see another rate hike in the near term.”

Analysts at Nomura said the weakening job data could help the Monetary Policy Committee to decide the direction of travel in rates. Nomura told investors in a note that they expect the first rate cut from the third quarter next year, while based on the latest data, they think the hiking cycle is over.

Money markets now see a 77% chance that the BoE will hold rates unchanged in its coming meeting in November.

Another key macro-economic release this week is Britain’s consumer price index (CPI) due on Wednesday.

(Reporting by Joice Alves; editing by Jason Neely)