UK unemployment rate jumps, as pound sinks, and $90,000 in sight for Bitcoin

By Kathleen Brooks, research director at XTB

The UK’s labour market data was notable for two things. Firstly, the unemployment rate jumped to 4.3% for the three months to September, this is the highest rate since March, and was above estimates. The second notable figure in this report was the wage data. The average weekly earnings figure for the 3-months to September was 4.3%, up from 3.9% in August. A jump in wage growth like this would normally raise fears about inflation, however, the ONS who compiles the data has said that it is down to one-off payments made to the civil service in July and August 2023, which is impacting the wage growth.

Budget impact could start to weigh on UK labour market data

Estimates for payrolled employees fell by 9,000 between August and September, however, there are 136,000 higher than a year ago. This suggests that the UK labour market is losing steam in then second half of the year, in line with a slowdown in the growth rate. The number of vacancies also shrunk by 35,000 between August to October. Fears about the budget may have put off businesses from hiring, however the increase in employer national insurance could see the vacancy rate in the UK, which currently stands at 831,000, shrink even more.

Worrying trends in UK labour market

UK company insolvencies are surging after the UK’s budget fell disproportionately on business owners. In the week after the Budget, more than 1000 companies filed to shut down, which is a 64% increase on a year ago. Rachel Reeves is unlikely to back down from her plans, however, they have gone down like a lead balloon, as the biggest burden is falling on small and medium sized businesses in the UK. The risk is that the Budget measures will cause growth to slow at a faster pace. GDP for Q3 is released on Friday.

Why the UK’s inactivity rate may not be the cause of its productivity problems

The UK’s inactivity rate is also a closely watched figure, it was 21.8% between July and September this year, which is lower than a year ago and lower than the previous quarter. This figure is blamed for the UK’s productivity problem, however, after rising sharply post Covid, it appears to be turning lower. The inactivity rate in the UK has been around 20% at its best, and 23% at its worst, after the financial crisis. According to the St Louis Fed in the US, the US has a similar rate of economic inactivity to the UK, however it is much more productive, with productivity growing at 2.2% rate in Q3. In the UK this was -0.1% for Q2.

The productivity problem in the UK may not be caused by the rate of inactive people in the economy, as the US also has a high inactivity rate. Instead, it may be caused by productivity within the actively working population, which is a tougher problem to fix.

GBP/USD gets weighed down by labour data and a stronger dollar

The pound is sliding again on Tuesday, and GBP/USD is hovering around 1.28, the lowest level since August. The higher unemployment rate could see the market start to price in a higher chance of a rate cut from the BOE next month. Currently there is a 20% chance of a cut priced in, however, this could be revised higher as the BOE is still data dependent.

Pound sinks as Bitcoin rips higher

The pound is the weakest currency in the G10 on Tuesday; however, the dollar is higher across the board. The Trump trade is still on, although this is mostly felt in dollar strength and in Bitcoin, which is higher by another $1400 on Tuesday and is just over $500 away from $90,000. The crypto currency has risen by $22,000 since the US election. It appears like there is a mission to push crypto higher, and $100,000 is possible if it continues to rise at this pace.

The dollar vs. Bitcoin

However, will crypto bulls be disappointed with Trump? The risk is that the President backs away from a strategic Bitcoin reserve once he realizes he will need to sell dollars to create one. So, in the coming weeks, it could be a battle between the dollar and Bitcoin, to see which one reigns supreme under Trump, as we don’t think that they can both do so together.

Bitcoin vs. gold

Likewise, the rise of Bitcoin in the past week has been at the expense of gold, which has fallen below $2600 per ounce. We will talk about this in detail later, however, it could be because bitcoin represent the privatization of money, which suits the libertarian and small state world of Trump, whereas gold is reliant on central banks to keep buying it for its value to increase. Thus, for now, crypto is king.  

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