Image: Dave Collier, sourced: Flickr, licensing: CC 2.0.
Surprisingly large decline in payrolls reported.
There was a marked drop in the value of the pound after the UK's ONS reported payrolled employment fell 32k in October, making for the biggest fall since November 2020.
Unemployment jumped to 5% in September from 4.8%, the highest level since the pandemic, which was more severe than market expectations for 4.9%.
Sterling's fall reflects a belief by market participants that the Bank of England will have to respond by cutting interest rates further and faster.
Also, the ONS reported annual average regular earnings growth was 6.6% for the public sector and 4.2% for the private sector.
The data paints a startling picture of the UK, where public sector spending continues to run out of control, requiring crunching tax rises in the upcoming budget.
The mix of unsavoury data triggered a drop in the pound to euro exchange rate from 1.1362 from 1.1390.
The pound to dollar exchange rate fell to 1.3128 from 1.3170.
The data raises the odds of an interest rate cut at the Bank of England in December, which is weighing on sterling.
"The bottom line from this morning’s ONS labour market report is that those in the market positioned for a BoE December rate cut will feel more comfortable than those who aren’t," says a note from Lloyds Bank.
The Bank will cut interest rates again if it feels confident pay increases won't contribute to upward inflationary pressures, which is why the ONS wage figures are so important.
The ONS said its HMRC median pay growth indicator for October - which is more timely than the traditional wage data set - slumped sharply to 3.1% y/y in October.
Slowing wage growth reflects easing demand for workers, which the Bank of England would describe as "slack".
Analysts at Goldman Sachs say the market is not prepared for the degree of rate cuts that will come from the Bank in the coming months, a development that should weigh on the pound.
"We continue to think the asymmetry from near-term Bank policy and the data trajectory into the December meeting is skewed to the downside for Sterling," says a note from the bank's FX research desk.
Economists at Goldmans expect an interest rate cut in December, followed by three more at a quarterly pace from February, to an unchanged terminal rate of 3.0%.