Sterling Hurt by Poor Employment Figures
Sterling has lost ground against the major currencies today as it was revealed that the unemployment rate in the UK has risen to 7.9% or 2.56 million, raising questions over the strength of the UK economy. The number of people in employment has also fallen while earnings growth has slowed considerably, according to the Office for National Statistics.
GBP/CHF has subsequently fallen to its lowest level in over a month, as has GBP/EUR. The graph above illustrates sterling’s demise against the Swiss currency over the last 10 days.
The figures from the ONS revealed that the number of people in employment fell by 2000 in the quarter leading up to February, to just under 30 million, the first time the figure has dropped since Autumn 2011. However, it wasn’t all negative, as the number claiming Jobseeker’s Allowance fell last month by 7000, to 1.53 million.
The ONS data revealed that 900,000 people have been out of work for over a year, an 8,000 increase on the three months to November. The number of unemployed young people (16-24 year olds) rose by 20,000, to 979,000. The news has put sterling on the back foot with concerns that a weaker labour market is pointing to worsening economic conditions.
This morning also saw the release of the minutes from the Bank of England’s latest interest rate announcement. As expected, none of the 9 policy setters voted in favour of a change to interest rates, which will remain at a record low of 0.5%. However, 3 of the 9 policymakers voted in favour of increasing the level of quantitative easing in an effort to kick-start the faltering economy. However, this came as no surprise as it was the same 3 members (including governor Mervyn King) that voted in favour of more QE at the last meeting.
“Further asset purchases, by lowering longer-term interest rates and supporting a range of asset prices, could facilitate a smoother path towards the economy’s new equilibrium, help prevent a more persistent reduction in spending, and thereby avoid potentially lasting damage to productive capacity,” the Minutes said. “There were also arguments in favour of maintaining the current size of the asset purchase programme. Monetary policy was already highly stimulatory and the benefit of past actions would continue to be felt … In addition, the extent to which supply capacity would respond to greater demand would depend on how quickly capital and labour could be redeployed from declining to growing businesses. This issue was better addressed by policies to improve the working of credit markets.”
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