UK unemployment rates are down to levels not seen since 2005, is Brexit as bad as predicted for the UK?
Yesterday witnessed the release of the latest set of unemployment data fall to the lowest rate since 2005, with a drop of 54,000 from the previous quarter. This figure was recorder from the months of March to May this year, before the referendum result and leaves the question; how long will this continue? And even more importantly, will the decision to leave the EU have an adverse effect of the unemployment levels moving forward?
UK wage growth showed a slight increase, pointing a healthy picture for the UK labour market. The most important calendar date to anyone with a currency requirement will be the upcoming Bank of England interest rate decision in August. Last month’s shock decision to keep interest rates on hold (after the market had chances of a rate cut at 70%) helped Sterling’s strength.
This week, inflation figures for both the year and month came out better than expected this week, highlighting the UK economy’s strength pre-referendum and coupled with the latest unemployment and wage growth figures (which are key barometers as to the interest rate decision). I personally believe that it is too early to think about rate cuts in the UK as of late. The economic drag from the Brexit is yet to be felt, and with the recent strong economic performance, in my eyes it would be a poor decision to cut interest rates just yet.
Although the current data being produced by the EU is showing good signs, as mentioned previously this was pre-referendum. In August, the data from July will be released and may present a very different story. Sterling is currently trading 10% lower as a result of the referendum, however over the past ten years, Sterling has been trading at an average of 1.25.
Political events will be dominating the headlines in the up and coming months, with the ability to heavily influence exchange rates. In my opinion, I think it would be wise to move sooner rather than later to avoid any losses once the data post Brexit is revealed.
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