The Office for National Statistics reported Wednesday that the United Kingdom (U.K.) claimant count (jobless claims) for January increased by 6,900 individuals from the previous month rising to 1.60 million, the highest number since January 2010. The increase was more than double the amount analysts projected at 3,000. Compared to January 2011, the claimant count rose by 146,300 in January 2012.
Additionally, according to the International Labour Organization, the measure of unemployment for the final quarter ending December 2011 rose 48,000 to 2.67 million. Thus, the unemployment rate remained at 8.4% continuing at the highest level seen since 1995 and fell in line with economists’ expectations. Furthermore, economists are not hopeful for prospects in the U.K.’s labor market and expect unemployment to increase much greater in response to slowdown in the global economy. Increased unemployment alongside weakening economic growth could inhibit government actions to reduce deficit via less income from fewer tax receipts and increased payments to welfare.
In addition to these gloom prospects, the credit rating agency, Moody’s is expecting they will have to downgrade the region’s credit rating within the next year and half over fears surrounding Britain’s economic growth. Some officials see the fear of a downgrade as a warning to the government to cut spending through reducing assistance for various public programs.
The employed are still feeling a squeeze on income as inflation is rising. In the final quarter (October through December 2011), income increased 2.0% compared to the previous three months. The rate was similar in the tri-month comparison that compared the three months to November to the previous three months. Yet, inflation shows much higher at 3.6% in January, although showing less than the 4.2% rate seen in December.
The GBPUSD has been trading in a downward channel and we expect the downward bias to continue. Given the fundamental weakness in the U.K. economy and the negative sentiment, we expect the GBPUSD to target 1.5600 in the short term.
Eugene Ross, Analyst
Admiral Markets
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