The British pound strengthened against the US dollar today despite weaker economic data. UK unemployment rose to the highest in seven months as jobless claims increased 9,000 to 819,300.
This followed a revised jump of 11,200 claims in April, as companies continue to cut workers as growth stalls. Financial service companies lead the job losses, as the effects of the subprime mortgage crisis linger. The deteriorating labor market has also begun to depress wages as April’s growth in average earnings including bonus slowed to 3.8 percent from 4.0 percent in March. Meanwhile, the trade deficit grew to -£7594 from a revised -£7147 as a 3.7% increase in exports was outpaced by rising imports. The current housing slump and rising inflation has squeezed consumers and weighed on domestic consumption, which will suffer further as job losses mount. The BoE has turned hawkish in the face of inflation rising to its 3% threshold, but the weakening economy confirms that their decision to leave interest rates unchanged next month will not be an easy one.