Real Wages Falling
The latest economic data out of the UK today has further heightened fears of a recession there. in the three months through August 2022, the unemployment rate was seen ticking back up to 3.6% from 3.5% prior. At the same time, wages were seen rising just 6%, down from the prior 3-months’ 6.1%. With inflation currently sitting at 10.1%, real wages have dropped even lower over the most recent period. Additionally, with UK CPI projected to increase to 10.7% tomorrow, real wages are being squeezed even harder.
Weaker UK Economic Outlook
UK consumers have been under immense pressure this year amidst soaring energy prices, rising inflation and higher interest rates. With real wages continuing to drop and the likelihood of the BOE hiking rates again next month, the near-term outlook is very precarious for the UK economy. The upcoming UK budget on Thursday looks set to add further strain for households and businesses with widespread spending cuts and tax hikes forecast.
Tomorrow’s Inflation Reading in Focus
For GBP, which is currently being boosted by a weaker USD and better equities prices, the outlook remains skewed towards downside. However, given the expectations already baked into the market here, a weaker inflation reading tomorrow might help alleviate some of this pressure, allowing GBP room to move higher near-term as traders price in a smaller BOE hike. However, if forecasts are hit or surpassed, chances of a further, large hike from the BOE should remain.
Following the failed topside break earlier in the year, EURGBP is now trading back within the bull channel. Currently, price is hemmed in between support at .8595 and resistance at .8869. With momentum studies bullish focus remains on further upside for now, targeting a move back up to YTD highs.