Amid the political tension over the North Korean missile test and ahead of the French election, Theresa Amy has caught the attention of the market after her unexpected call of snap election this coming June. The announcement has left a negative impact on the British pound and now the stability of the economic state of the nation is also at stake.
Employment and Consumer Price Inflation
Last week, the Office National Statistics reported the 74.6 percent increased of Britain’s employment rate, the highest figures since 1971. The numbers came unexpected despite the fact that the employment was found at a much slower pace over the last six months. The current unemployment rate concludes the business confidence in the country since the commencement of Brexit last June 2016.
Consequently, the unemployment rate was kept at 4.7 percent amid the estimated 45,000 individuals who got employed in the three months to February. The job vacancies from January to February increased, marked as one of recruitment’s busiest times.
Recruitment & Employment Confederation CEO Kevin Green concluded that the monthly jobs report showed placements via recruiters were increasing and demand for staff was at an 18-month peak, so it's likely employment numbers would continue to creep up.
Meanwhile, consumer prices in March rallied by 2.3 percent, only similar to that in February as inflation pressure remained to haunt the economy. Most of the economists feared that the consecutive boom of prices could hinder the expected growth of the economy in general. Adding to this, wage growth seems to be impossible at the moment as inflation rises.
Therefore, this is the situation in the UK - employment rises but wages remain low; consumer prices increased which weakened the consumer spending. With lesser consumers who are willing to spend, the growth in economy couldn’t be pushed. Also, there’s a tendency that workers would jump from one job to another until they find comparable payment. The choices of the workers could be limited in the near future as the post-Brexit concerns tend to stop the business giants to make relative decisions. Apart from this, the removal of Britain from the European Union may bring minimal opportunities overseas.
May : General Election on June 8
British Prime Minister Theresa May shocked the market when she called for a snap election happening this June. May said that she provided stability in the country when it needed it the most and Britain won over the battle to exit from the EU. However, the government is currently divided on the concerns regarding Brexit, and that’s where the role of election comes in – a unified decision from the majority. May assured that the government has a plan for Brexit and Britain will eventually regain control of its laws and borders.
Following the election confirmation, the British pound soared against the US dollar. The GBP/USD pair rallied from 1.25556 levels to 1.27168 levels as of 16:15 UTC. The pair was previously in a tight range at 1.25300 levels, but still running on a bullish path. Fundamentally, the snap election could provide optimism over the future of the British economy as new administration typically spurs hopes. The stability of one’s economy boosts the trust of the investors on its currency. Back in 2016, the US dollar received an optimistic outlook after Trump was elected and it continued to rally when the Federal Reserve finally increased its interest rate.
On the other hand, the announcement was now tinted with alleged political strategy from May as the Conservative Party led the recent poll. Evidently, the UK will still be facing the consequences of leaving the EU, both in the political and economic sides.