GBP flows: GBP firmer after labour market data but weakness evident in HMRC numbers
EUR/GBP slightly lower after UK ONS labour market data comes in slightly less weak than expected, but HMRC data suggests more weakness to come
GBP has edged a little higher after the UK labour market data, with the ONS average earnings data coming in a little above expectations for the 3 months to October, albeit still slightly down from September. However, the more up to data HMRC data show a sharp deceleration in earnings growth in November to 2.7% y/y, the lowest since the pandemic. While this is provisional at this stage, and only relates to payrolled employees, it suggests there will be scope for easier monetary policy next year.
The employment data continues to show declines, although the ONS data shows a smaller 16k decline in the 3 months to October than the 67k consensus. But again, the provisional HMRC data shows a 38k decline in November. So all in all, the data support easier policy down the road, and there should eb scope for more than the 60bps of easing by the end of 2026 priced into the UK curve. The initial GBP rise on the data should reverse after the market looks at the detail of the labour market data, and we still see potential for a challenge to the year’s highs above 0.8860 in EUR/GBP by the end of the year.
