There’s no two ways about it, the UK labour market remains in cracking shape despite business investment grinding to a halt and growth turning negative in the second quarter.
The strong beat on Average Weekly Earnings ex bonuses is particularly encouraging and supports the Bank of England’s relatively optimistic base case for the economy, where continued wage growth supports consumer spending and the economy as a whole.
June’s jobs report features a beat in wage growth combined with job creation that’s almost double expectations – in normal circumstances you’d expect sterling to rally on these figures.
Chart: No sterling rally in sight despite good labour market figures
Copyright: Bloomberg Finance LP.
The pound remains hobbled by no deal risk, and you’d practically need a microscope to see sterling’s appreciation this morning.
Labour market data is also a lagging indicator, while forward indicators such as surveys indicate the economy is slowing and remains vulnerable to further shocks.
The takeaway from this report should be that there is a very strong case for sterling strength once Brexit is resolved.
Rising wages should drive sustained consumption growth, which combined with recovering investment should require the BoE to eventually raise rates.