Published: December 11th, 2024
A survey from Britain's Recruitment & Employment Confederation (REC) says monthly permanent staff placements have fallen to a 15-month low.
The industry body's ‘wage gauge’ full-time employment index dropped from 44.1 in October to 40.7 in November, the biggest month-to-month drop seen since November of last year.
In a market analysis following the report, Pantheon Economics wrote that the survey 'captures a sudden softening in the UK labor market as companies look to reduce headcount and offset the Chancellor's recent payroll tax hike’.
REC's survey also said that the number of people looking for a new role is also on the up. Its permanent staff availability index moved up to 59.7 in November from 59.05 in October. The jump suggests that demand for jobs is on the rise, but the supply of jobs is in decline, typically resulting in a decline in average wage growth.
One outcome for Sterling could be that Bank of England policymakers gain more scope to reduce interest rates next year if they judge falling wages to be a deflationary input to its inflation calculations.
If it happens, pantheon analysts say it would create significant headwinds for GBP, which has been lifted recently on expectations that Threadneedle Street will be one of the slowest rate reducers amongst the G10.
The REC's survey also suggests wage pressures are declining. It’s permanent staff salaries index rose from 52.5 in October to 52.6 in November. For comparison, it averaged 60.0 from 2015-2020.
The index for temporary staff salaries dropped to 51.2 from 51.5 last month. ‘There’s little doubt now that the UK budget has slowed job growth to a crawl,’ added Pantheon.
As recently as mid-November, Analysts at Goldman Sachs were calling the British Pound a potential ‘hidden gem’ in their year-ahead forecast. The Wall Street bank published a report listing a set of post-election targets that suggested solid gains for Sterling in the coming months.
Pointing to GBP’s ‘bullish set-up,’ Goldman said the Pound ‘should keep pace with a broader appreciation in the Dollar.’ Given Goldman Sachs’ central position in the global financial architecture, the bank’s outlook affected how traders set their expectations of the forex market for what could be a volatile 12 months.
One prediction in the year-ahead forecast was for the Pound to Euro exchange rate to rise well above 1.20. 'We have maintained a constructive view of GBP over much of 2024, and we believe the rationale is still there for ongoing outperformance by Sterling on G10 crosses over the next few months.’
Goldman's report landed in the aftermath of Donald Trump's US presidential election victory, which also saw his Republican Party win majorities in both houses of Congress.
Trump 2.0 looks ready to shake up global trade while strengthening America’s economy, a scenario which would keep US interest rates ‘higher for longer’ than other major currencies.
Any new US import tariffs could hit the Eurozone's all-important exports hard, while higher Fed rates would ultimately mean gains for the Greenback.
‘We see that as a powerful supportive mix for the Dollar,’ Goldman’s report adds. ‘As a result, we are no longer looking for broad depreciation by USD, even on a six or twelve-month timescale. We see USD staying stronger for longer.’
In August, the Pound faced down an extended selloff against a backdrop of sinking global stock markets and worries that the US economy was faltering.
The Pound to Euro rate dropped 0.60 per cent on 21st August after the Bank of England (BoE) cut interest rates by 25 basis points. US equities markets fell the day after as earnings from big technology companies came in well below expectation.
A research note from Capital Economics said those factors created additional selling pressures in the Asian session, when Japan’s Nikkei 225 index fell by more than over five per cent. ‘In our view, such a steep and sudden decline points to a wider bout of global risk aversion.’
Risk-averse sentiment can negatively impact Sterling, which was already feeling the pressure after the Bank of England made its rate cut. The Pound to Euro conversion fell below 1.18 on Tuesday 6th August to touch 1.1773, a level last seen in early July.
Historically, GBP tends to lose value against USD, EUR, CHF and Yen when market sentiment turns gloomy. It can also gain against 'high beta' currencies like the Norwegian Krone and the Australian and New Zealand dollars.
‘Stock markets fell globally as fear trading took over in advance of the crucial US job print,’ wrote Capital Economics’ analysts. ‘Many sectors are experiencing a selloff, with tech firms suffering worst after investors punished Intel, Amazon, Apple and others for poor earnings.’
In April, The GBP/EUR exchange rate moved to the 1.17 threshold following publication of GDP figures showing the UK economy grew 0.1 per cent month-on-month in February 2024, while an upward revision to January's figure (from 0.2. per cent to 0.3 per cent) added to the good news.
The combined numbers from the Office of National Statistics (ONS) effectively guarantee that the quarterly figure will indicate a return to growth, ending the low-level recession seen in the second half of 2023. A Q1 contraction would mean that UK GDP declined by a full percentage point in March, something economists see as highly unlikely.
Sterling was up against most of its peers at mid-month, though the Pound to Dollar rate struggled to get beyond 1.2537 thanks to a broader Greenback rally driven by the release of strong US inflation and labor market prints.
Production output drove the majority of UK growth in February, expanding by 1.1 per cent. The UK's large services sector grew by 0.1 per cent in February and by 0.3 per cent in January.
