Pound Exchange Rate (GBP) Falls as Wages Remain Behind UK Inflation

Pound Exchange Rate (GBP) Falls as Wages Remain Behind UK Inflation

The Pound fell against other major currency peers on Wednesday such as the Euro (GBP/EUR) and US Dollar (GBP/USD) but managed to record some gains against the Australian Dollar (GBP/AUD).

The British currency fell after disappointing labour market data emerged which showed that UK wages excluding bonuses came in at 2.5% in the three months through December on the year. Although the figure rose from the previous 2.3% reading and bypassed the 2.4% forecasts, households are still feeling the bite from inflation which resides well above the Bank of England’s (BoE) target, at 3.0%.

Additionally, BoE Governor Mark Carney spoke in today’s trading, agreeing that Britain has shifted from ‘the top of the pack to the bottom’ with regards to the Group of Seven (G7) economies. While Carney acknowledged the UK had put in a great recovery following the Global Financial Crisis of 2008, uncertainty after the monumental EU referendum now weighed on growth.

Carney suggested that the unrest over how a future trade deal might look is

‘having an effect on the demand side of the economy… and that is probably affecting the supply side too.’

One of the most negative things about Carney’s comments came back to wage figures. Real incomes are currently 3.5% lower than the BoE had forecast back in May 2016 before the Brexit referendum. What’s more, that gap is expected to widen further, to 5.0%.

Investors sold the Pound as they tried to price in the likelihood of a Bank of England (BoE) interest rate hike. The possibility of higher interest rates is a speculation which has been supporting the Pound of late, if it seems the bank may hesitate to hike as the labour market remains weaker, Sterling could fall. Investors will be looking closely at tomorrow’s UK Gross Domestic Product (GDP) growth data. Economists expect growth in the fourth quarter to come in at 1.5%.

The pound to euro (GBP/EUR) exchange rate is currently trending at 1.1327.

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