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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

GBP: UK wages continues to rise faster than inflation

Ahead of the Bank of England’s rate meeting this week, the upward pressure remains on inflation. However, while the unemployment rate remained at 4.2%, wages, excluding bonuses, rose by 7.3%.

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This reading is well above the 4.6% rise in annual consumer prices across the UK. The Bank of England is worried that pay growth in Britain is too high for it to bring inflation down to its 2% target.

(AI Video Transcript)

The UK unemployment rate

In October, the UK unemployment rate stayed the same at 4.2%. At the same time, wages went up by 7.3% in the three months leading up to the end of October. Economists were actually surprised by this increase in wages, and now the Bank of England is feeling pressured to raise interest rates. The bank is worried that the high wage growth might cause inflation to go higher than their target of 2%. When this information was released, there was a temporary increase in the value of the UK currency (pound) compared to the US dollar, but it has since gone down again.

The Bank of England

The Bank of England will be making an important decision about interest rates on Thursday. This decision will have a big impact on what happens to the value of the UK currency in the future. Right now, the pound is being traded at 1166 in relation to the euro, and there are concerns that it might not stay at this level. The bank is afraid that if wages keep going up, there might be a cycle where prices increase too, causing people's wages to rise even more. To stop this from happening, the bank might have to raise interest rates again. It's not expected that this will happen this week, but everyone will be paying close attention to the bank's decision.

The US Federal Reserve

The US Federal Reserve is also going to make a decision about interest rates this week, and this will also affect how the UK currency performs. If the interest rates in the US stay the same, it might be a sign that the next move will be to decrease them. Right now, the pound is being traded at 125.72 compared to the US dollar. Traders who think the pound will go up should watch how it's performing compared to the 200-day moving average, with a target price at the high of 127.40. On the other hand, those who think the pound will go down should wait for it to rise above 127.50 as a signal to sell it. Ultimately, the Bank of England and the Federal Reserve's decisions about interest rates over the next few days will be really important in determining what happens to the value of the UK currency.

This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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