Pound jumps as jobs data fuels interest rate bets

Today the Office for National Statistics reports that unemployment has fallen to its lowest level in nearly 50 years at 3.7%, while vacancies remain high.

Tomorrow’s inflation figures should show that prices are even higher. Deutsche Bank expects the inflation figure to come in at 9.2%, well on its way to the Bank’s predicted peak of 10%.

The combination of a buoyant labor market and rampant inflation leaves the Bank of England little choice but to hike rates from 1% to perhaps 3% by the end of the year, further reducing consumers’ purchasing power.

Rate-maker Sir Dave Ramsden told MPs on the Treasury Select Committee yesterday: ‘Most members of the committee believe further policy tightening will be required.’

Thomas Pugh, economist at RSM UK, said today’s data “will probably be enough to convince a majority of members of the Monetary Policy Committee (MPC) to vote for further rate hikes at the next meeting of the June 16”.

The pound, which has been under fierce pressure for weeks, rose 1.62 cents to hit $1.2479. While jobs are plentiful, wages are now lagging inflation – wages rose 4.2% between January and March, well behind cost increases of 7%.

April inflation numbers for tomorrow are expected to point to further pain. If the labor market also falters, this increases the risk of a recession.

Pawel Adrjan of job site Indeed said: “The labor market remained on solid footing despite GDP contracting 0.1% in March as hiring activity remained high at 2.1%. million people starting new jobs in the first quarter of the year.However, the clouds are gathering over the UK economic outlook and with the cost of living crisis worsening, this could be the last strong month before we see a slowdown in the labor market, which tends to be a lagging indicator.

Wages in some sectors continue to rise sharply. In particular, we are witnessing a pay boom in the City with salaries in financial services up nearly 11%, largely thanks to bonuses.

Victor Trokoudes of savings app Plum said: “There is also a big gap between private sector wage growth at 8.2% and public sector growth at 1.6%. Count safely in the future, if their finances are to keep pace with rising inflation.

Yesterday Bank of England Governor Andrew Bailey warned of an ‘apocalyptic’ rise in food prices due to the war in Ukraine. He admits the Bank of England now faces its biggest test since gaining independence from government 25 years ago.

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