UK Labor market Preview: UK wages set to rise strongly in support of inflation and Sterling

• The UK unemployment rate is expected to remain stuck to a four-decade low of 4.0% in January.
• The UK regular pay excluding bonuses is expected to accelerate to 3.4% over the year while total pay is seen up 3.5% y/y in three months to December.
• The number of people seeking the unemployment benefits in the UK is expected to rise 2.4K in January, down from 20.8 in the previous month.
• Sterling is expected to be supported in its corrective mode higher with the UK labor market proving strong at the beginning of the new year.

The UK regular pay that excludes the bonuses is expected to accelerate to 3.5% over three months ending in December while total pay including bonuses is seen up 3.4% over the year with the unemployment rate stuck to a four-decade low of 4.0% in January, the Office for National Statistics is expected to report on Tuesday, February 19 at 8:30 GMT.

The claimant count or the number of people seeking unemployment benefits is expected to drop to 2.4K in January compared to 20.8K in the previous month. The UK labor market data is expected to support the GBP/USD in its corrective move upwards after Sterling broke away from the downward sloping trend last Friday and it trades above 1.2900 level.

The UK labor market is tight and the combination of the low unemployment rate is pushing the starting wages as well as existing wages higher, the trend that the Bank of England considers the most important driving force of the future inflation in the UK.

“With Brexit just days away now, it’s definitely a nervous time for recruiters. January marked the first fall in permanent staff appointments since the referendum and we’ve seen a sharp decline in the number of candidates entering the jobs market.  This is pushing up starting salaries at historically strong rates," James Stewart, Vice Chair at KPMG that prepares the UK labor market PMI in cooperation with IHS/Markit wrote in January report.

The UK labor market report from IHS/Markit saw the number of permanent placements fall for the first time in two-and-a-half-years while a sharp fall in the availability of candidates leads to further increases in starting pay.

The Bank of England repeatedly points out that the UK labor market tightness is the main determinant of future inflation pressures in the UK.

"While most surveys of employment intentions softened a little in Q4, consistent with a slight slowing in employment growth in early 2019, labor market conditions are projected to remain tight and unemployment is expected to be broadly stable in the near term,” the Bank of England wrote in its February Inflation Report on February 4.

The growth rate of UK wages excluding bonuses until November 2018