Downside pressure on Sterling might increase – Commerzbank

The British labour market data was a mixed bag. Economists at Commerzbank analyze GBP outlook ahead of next week’s Bank of England meeting.

Not so easy for the BoE

The unemployment rate recorded a slight rise, which means that the labour market continues to cool. As regards the fight against inflation, that in itself is good news. At the same time, wages rose sharply again, and that in turn is bad news as it does not exactly make the Bank of England’s job any easier.

The BoE is likely to find it increasingly difficult to continue its rate hikes. However, so as to contain inflation expectations and dampen wage rises that is exactly what might become necessary. It remains to be seen whether the BoE will do that to the necessary extent. The market does not really seem to trust the BoE to do this, as Sterling eased following the publication of the data.

If the BoE is unable to convince the market of the contrary over the coming weeks, with particular focus obviously directed at next week’s rate meeting, downside pressure on Sterling might increase.