The British pound edged lower against its U.S. counterpart as the Bank of England held its interest rate and signaled for further rate cut as the MPC looked deeper into the impact of Brexit during the course of the year.
As of 13:43 UTC, the sterling opened at 1.3208 moving downward after hitting 1.3233 the previous session. GBP/USD found support at 1.3221 and resistance at 1.3306 with an Intraday high of 1.3246 and an Intraday low of 1.3203. The pair will likely stay at the downtrend during the course of the day as the market digests the outcome of the policy meeting.
The figure above shows that the pair was still pushing it into the outer band, thus, a lack of power is visible. It may continue to contract and slide at the end of the overnight session. The pair may not found a breathing room to trend with a green candle.
UK Employment After Brexit
Months after the decision by Britain to leave the European Union, one of the major concerns was the stability of the employment sector. In the hype of the economic fear, experts predicted that a lot would consider getting out of the country to avoid the impact of the referendum. However, it seemed there was a change of course, since the latest job data showed an improvement of the labor sector.
Reporting late on Wednesday, the British Office for National Statistics disclosed the sudden and unexpected blow up of jobs in the country. The unemployment rate from May to July dropped 0.6 percent, while the employment rate jumped by 74.5 percent in the same period. Historically speaking, approximately three quarters of the working population attained jobs based on the survey.
The report sends a positive tone in the British economy considering the last three months were crucial for the country. On one hand, this type of economic data is what the country needs right now – a bit of optimism amid the forecasted massive market turbulence.
On the other hand, a hidden fact was kept here. During those months, all the companies were still in the business mode and hiring was not stopped by the speculations regarding the referendum. Thus, the presence of Brexit was not fully felt yet.
Here’s what Samuel Tombs, chief British economist at Pantheon Macroeconomics has to say. “When you scratch beneath the surface, today’s labor market figures are not as robust as they first appear,” (The data) remains supported by surging self-employment … the strong growth also reflected a shift towards part-time working; total weekly hours rose by just 0.3 percent between April and July.”
UK Retail Sales
Following the decline of the unemployment rate, the retail sales in Britain skid a little as the impact of Brexit was shrugged off. On an annual basis, retail sales slipped for only 0.2 percent after the strong jump of almost 2 percent in July. The figures came better-than-expected as the economists predicted a decline of 0.4 percent.
Year-over-year, the household goods contracted for the first time in two years and the textile and clothing and footwear sector plunged as well. Apart from this, the sales volume climbed by 6.2 percent on an annual basis after the 6.3 percent rally in July.
Business owners claimed that the full impact of the referendum was still vague and the little palpable effects did not influence the consumer spending. The ONS supported this statement and said that “Overall the figures do not suggest any major fall in post-referendum consumer confidence.”
Benchmark Interest Rates
Despite the positive note on the previous economic data, the Bank of England left the interest rate unchanged. Proving the slight immediate impact of Brexit, the bank held steady its rate at 0.25 pc, the lowest since the significant cut last month. Also, the committee went in favor of leaving the quantitative easing program at £435 billion.
The BoE left the door open for another rate cut this November if the economic target will not be met accordingly. Further, the minutes of the latest policy meeting indicated that a majority of members expects to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of this year.
Ian Kernohan, Economist at Royal London Asset Management, shared “The Bank’s view is that the Brexit process will take some time, and will create uncertainties for households and firms. Specifically, they expect business spending to slow more sharply than consumer spending in response to this uncertainty. In my view, the news since the August Inflation Report should not have impacted this medium term assessment of the UK’s economic prospects, and I expect another rate cut in November.”
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