The mixed jobs report is gaining traction. The ILO’s employment report showed that unemployment fell unexpectedly to 5% in the three months to January, down from 5.1% in December and below the 5.2% expected.
The unemployment rate has improved despite new isolation conditions in the UK earlier in the year. However, many sectors outside of the consumer services sector have also begun to awaken. Meanwhile, those sectors that do not work are subject to a vacation, which the Chancellor extended until September. Unemployment is expected to rise to about 6.5%; however, this will happen later in the year when the leave expires.
Perhaps the most telling data is the number of applicants, which jumped sharply in February to 86.6 thousand, significantly more than the expected 9 thousand. On the anniversary of the first lockdown, the number of people claiming unemployment benefits rose 1.4 million, the equivalent of 116.3% from a year earlier.
The pound has come under pressure against both the US dollar and the euro following the release of the data as investors shy away from unemployment data, somewhat masked by vacations, instead of in response to a spike in jobless claims.
On the other hand, the huge US current account deficit, which has almost doubled in the past two years, is expected to put pressure on the dollar and this could slow the pound’s movement. The current account deficit widened last year as the pandemic severely disrupted exports. The gap could remain wide this year as the stimulus-driven economic recovery drives imports.
The current account deficit was 3.1% of gross domestic product last year, also the largest share since 2008, up from 2.2% in 2019. High current account deficits are probably not a problem for the United States, in part due to the status of the dollar. as the world’s reserve currency.
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