U.K. Jobs Data

13 Aug 2013

Step aside, payrolls Friday.
U.K. markets have a new heavy-hitting data release to enjoy each month: U.K. unemployment.

U.K. jobs day has always been a point of interest to sterling and the country’s rates markets. But it has never been exciting enough to burn calories, like payrolls day does.

Since the Bank of England last week specifically linked U.K. unemployment levels to the interest-rate outlook, however, that’s set to change.

To recap, for anyone who has been on holiday and/or living under a rock for the past week or so: the BOE said in its quarterly Inflation Report last week that it does not expect to raise rates from their current historic lows until the unemployment rate falls to a threshold of 7%. It now stands at 7.8%.

There are explicit get-out clauses here, and the market is somewhat fixated on them for now.

But the magic number seven is the one to watch, and the release is due at 0830 GMT this Wednesday (at the same time as the minutes from the most recent BOE monetary policy committee meeting, and a day after inflation numbers… it’s going to be a big week for U.K. markets). The market is looking for an unchanged rate of 7.8% for now.

But Neville Hill and Steven Bryce, analysts at Credit Suisse, reckon unemployment might hit this tipping point sooner rather than later. “We think there’s a good chance that unemployment falls faster than the MPC anticipates, and in coming quarters the MPC’s best estimate of when unemployment will fall below 7% is steadily brought forward,” they said in a note last week.

They continue: “Although the ‘knockout’ clauses have caught the attention of market participants, we would argue they are 1: Not that controversial, and 2: Unlikely to be triggered.”

All that pushes the potential impact of the unemployment data Wednesday to the top of traders’ worry lists.

U.K. monetary policy doesn’t have anything like the same global reach as that of the U.S. Still, Nomura quants – please strap a calorie counter to a sterling trader at once.

Source: http://blogs.wsj.com/moneybeat/2013/08/12/u-k-unemployment-data-the-new-payrolls-kind-of/