Surprise fall in UK unemployment all but locks in a November hike

In the ONS bulletin of 20 October, the unemployment rate fell 0.1 point to 4.7% in the June–August period, against a consensus of 4.9% cited by FXStreet. The employment rate rose to 75.3%, while vacancies fell by 21,000 over three months to 691,000. Payrolled employees were down 111,000 on the year, and the claimant count rose to 1.701 million in September. The data show a labour market that is not unravelling but is not creating jobs either.

On pay, the measure the Bank watches most closely, regular wage growth held at 3.7%: 3.0% in the private sector and 6.3% in the public sector. Monetary Policy Committee member Megan Greene said the same day that the slowdown in wages has stalled above a level consistent with 2% inflation. According to FXStreet, Greene sees wage growth of about 3% as compatible with the 2% target and said forward-looking indicators point to 3.5%. She described the policy stance as "not restrictive enough".

Sterling rose from 1.33 to 1.34 against the dollar, its highest since mid-September. Markets attach roughly 95% probability to Bank Rate rising from 3.75% on 5 November. Fiscal space is tighter. In a Reuters poll of 19 economists dated 15 October, headroom ahead of the 28 October budget was estimated to have shrunk from 23.6 billion pounds in March to 10–12 billion. The same poll found that a 30 basis-point rise in gilt yields cuts that headroom by about 5 billion pounds.