Image source: Pixabay
 

The latest UK economic data released this morning has raised some serious questions about the outlook for the UK economy. In the three months through February, the unemployment rate was seen increasing to 3.8% from 3.7% prior, with the claimant count surging to 28.2k from -11.2 prior. While this data was unwelcome, it wasn’t the main cause for concern. The key issue was the unexpected jump in the wages index which rose to 5.9% from 5.7% prior, well above the 5.1% level the market was looking for.
 

Upside Inflation Risks

With fewer people working and wages rising sharply, the data makes for troubling reading for the BOE. The main issue is that the data suggests that inflationary pressures were likely to have remained high last month. Following the jump back up to record 10.4% inflation in February, traders’ BOE expectations have turned more hawkish. While the market is looking for inflation (released tomorrow) to have cooled last month, today’s data suggests there is still plenty of upside risk.
 

BOE Outlook

On the back of the .25% hike in March, traders are looking for at least a further .25% hike in May, keeping GBP supported for now against currencies where central bank expectations have turned lower. This narrative is likely to remain the case unless there is a sharp drop in tomorrow’s UK CPI. On the other hand, if CPI is seen jumping above expectations,  this will turn the BOE outlook even more hawkish, putting further upside pressure on GBP.
 

Technical Views

GBPJPY

(Click on image to enlarge)

The rally in GBPJPY has seen the market break out above the 164.43 level following a failed attempt earlier this month. With momentum studies bullish, the focus is on a continued push higher while above here with 168.92 the next objective for bulls. 

More By This Author: