FX.co ★ UK Labor Market Shows Signs of Cooling

The British pound failed to fully benefit from the positive UK statistics. According to official data, the UK labour market continued to cool over the summer as companies prepared for further tax increases, which will weigh on the economy.

The Office for National Statistics reported that the number of employees fell by another 8,000 in August, marking the seventh consecutive decline. This was only slightly better than economists' forecasts. Wage growth excluding bonuses over three months slowed to 4.8%, the lowest in three years. Private sector wage growth, closely watched by the Bank of England, slowed to 4.7%. The unemployment rate remained at a four-year high of 4.7%, while the number of job vacancies continued to shrink.

Clearly, the slowdown in labour market activity has manifested in rising unemployment, fewer vacancies, and weaker wage growth, highlighting the growing pressure on the UK economy. Even the modest rise in unemployment is a warning sign, suggesting companies are increasingly forced to cut costs amid mounting uncertainty. The decline in vacancies confirms weakening demand for labour, as firms become more cautious about expansion. Slower wage growth, while potentially helping to restrain inflation, also reduces consumer purchasing power, which in turn may negatively affect consumer demand and economic growth.

Overall, the state of the UK labour market indicates that the country's economy is slowing. Further tax hikes could weaken economic activity even more and worsen labour market conditions.

These figures also dealt another blow to Chancellor of the Exchequer Rachel Reeves, who has been criticised for triggering the slowdown with steep increases in payroll and minimum wage taxes in April. Companies and consumers are now bracing for another round of tax hikes in the November 26 budget to cover a new gap in public finances.

At the same time, this data may not ease the Bank of England's inflation concerns. While BoE Governor Andrew Bailey has stressed the weakness of the labour market, officials are increasingly worried that the recent inflation surge is leading consumers to expect sustained price growth. Rising food and energy bills pushed inflation to its highest level in 18 months, and data due tomorrow is expected to show that price growth remains high at 3.8%, nearly double the Bank of England's 2% target.

Over the past month, traders have revised expectations for BoE rate cuts and no longer forecast further easing this year. The nine-member Monetary Policy Committee is expected to keep the key rate at 4% on Thursday.

As for the current technical picture of GBP/USD, buyers need to push above the nearest resistance at 1.3645. Only then can they target 1.3675, above which a breakout will be difficult. The ultimate target would be the 1.3710 level. In case of a decline, bears will attempt to regain control at 1.3610. If they succeed, a breakout of this range will severely damage bullish positions and push GBP/USD down to the 1.3585 low, with prospects of extending toward 1.3550.