UK Economy Worsening
The pressure on the Bank of England ahead of its next policy meeting on February 4th is growing. The latest economic data for the UK, released today, showed that the unemployment rate rose to its highest level in 4 years in the 3 months through November. At 5%, 1.7 million people were seen out of work over the measured time-period according to the Office for National Statistics. This marks an increase from the 4.9% unemployment level recorded in the prior three months and takes unemployment back up to its highest level since April 2016. For perspective, in February last year before the pandemic struck, the UK unemployment rate was 4%
Huge Rise in Furloughed Workers
The data largely reflects the number of redundancies made in anticipation of the government ending its furlough scheme. Given that up until the last minute, businesses were informed that the scheme would be terminated at the end of October, many struggling businesses were forced to cut worker numbers. However, the scheme ended up being extended last minute and, in response to lockdown measures being reintroduced, is now forecast to last until the end of April. The number of British workers on furlough has more than doubled to 5 million since the scheme was extended.
Pressure For Govt To Do More
The government is now coming under increased pressure to provide further support for workers given the protracted nature of the current lockdown. The ONS data shows that the number of UK workers claiming unemployment benefits has ballooned by 113% since the pandemic began last March. Commenting on the release today, UK Chancellor of the Exchequer Rishi Sunak said: “This crisis has gone on far longer than any of us hoped – and every job lost as a result is a tragedy. While the NHS is working hard to protect people with the vaccine we’re throwing everything we’ve got at supporting businesses, individuals and families.”
BOE Easing Expectations
With the government stretched to the limit in its response to the crisis, the expectations is now that the BOE will be forced to do more. With rates currently at record lows of 0.10% and with asset purchases of £300 billion underway, the market is increasingly expectant of a move into negative rates. The BOE has talked a lot about negative rates recently, including engaging with regional banks on how they would handle negative rates. However, BOE governor Bailey has constantly warned over the risks of using negative rates. The BOE meets next on Feb 4th.
GBPUSD is holding just beneath the 1.3747 level resistance for now. Price continues to be supported by the 1.3516 level which, while intact, keeps the focus on further upside in lie with the bullish channel which has framed price action over recent months.
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