GBP: British labor market sends out warning signals again - Commerzbank

The British Chancellor of the Exchequer was probably hoping for a better labour market report that indicates that the underlying trend is stronger than anticipated, providing her with greater flexibility in her upcoming budget, Commerzbank's FX analyst Michael Pfister notes.

BoE is likely to deliver the next cut in December

"Ultimately, however, these expectations were not met. Once again, significantly more jobs were lost than expected, and the September figure was revised further into negative territory. This caused the unemployment rate to unexpectedly rise slightly."

"Another problem is that wage growth is slowing down. While this allows the Bank of England to respond better to the weakening economy with interest rate cuts, it is negative for residents as inflation is eating into their wage increases already. The BoE is therefore likely to deliver the next interest rate cut in December, followed by at least one more next year. The trend in these data suggests that there will be even more than one cut next year."

"The finance minister may experience some relief tomorrow when the initial third-quarter growth estimate is released. Recently, almost all growth has come from the government, while the private sector has seen virtually no growth for almost three years. Better figures would certainly be helpful here, even though the combination of recent data increasingly suggests that the Chancellor is facing a Herculean task with her new budget at the end of the month. Given this unfavourable combination, the risks for the pound are likely to continue to lean towards further depreciation."