British pound calm, BoE wage growth expectations fall

The British pound is slightly lower on Thursday. GBP/USD is trading at 1.2771 in the European session at the time of writing, down 0.12% on the day.

BoE: Businesses expect lower wage growth

The Bank of England released a survey today which showed wage growth expectations for the coming year have fallen sharply. In May, the survey indicated wage growth expectations came in at 4.1%, down from 4.6% in April. On a three-month average basis, the indicator dropped to 4.5%, down from 4.8%. Both readings were the lowest since May 2022, when the survey first began.

The data is encouraging as the BoE projected in May that annual wage growth would ease to 5.25% by the end of the year, which is not compatible with a 2% inflation target. If wage growth falls faster than expected, it will be easier for the BoE to lower interest rates.

Inflation in the UK has fallen from 11.1% in October 2022 to 2.3% in April, its lowest level since September 2021. The final phase of bring inflation back down to the 2% target will likely be bumpy and the central bank is expected to deliver a rate cut before the target is achieved.

The UK economy is showing some strength, which could complicate the BoE’s plans to cut rates. The construction, manufacturing and services sectors all recorded growth in May, no mean feat. The construction PMI, released today, accelerated for a sixth straight month and hit 54.7, a two-year high. This followed a reading of 53.0 in April and beat the market estimate of 52.5.

GBP/USD Technical

• GBP/USD tested 1.2802 in resistance earlier. Above, there is resistance at 12861
• 1.2741 and 1.2682 are the next support levels