Update, 17th August: Stronger-than-expected wage growth and UK retail sales figures have failed to improve the UK economic outlook, or boost the pound today. Markets remain concerned that real wages are falling and that consumer spending is weakening.
Original article continues below…
The Pound continues to weaken versus the South African Rand today, despite the release of above-forecast UK unemployment and wage growth data.
GBP ZAR is currently down -0.5% at 17.0350.
Rising Wage Growth Figures Boost GBP; a Double-Edged Sword for the Pound?
The Pound has recovered some of the morning’s losses against the South African Rand thanks to strong UK wage growth figures, but could the data actually have clouded the GBP outlook?
UK wage growth has clocked in at 2.1% both with and without bonuses taken into account, against predictions of 1.8% with bonuses and 2% without.
Additionally, a -4,200 fall in the number of people claiming unemployment benefits has pushed the rate of joblessness down further.
While in percentage terms joblessness has held steady at 4.4% (against expectations of a rise to 4.5%), from a numerical point of view the number of people out of work in the UK is now at the lowest since 1975.
While rising wage growth means that households will not struggle so much with rising prices, it also means that the Bank of England (BoE) has yet more justification for holding interest rates at their current levels.
And even though wages have grown, taking inflation into account shows that real pay growth has still fallen -0.5%, so the outlook for consumer spending is hardly rosy.
This realisation could haunt the pound in the medium to long-term once markets have had time to fully digest today’s pay growth data and its implications.
Political Tensions Have Economic Consequences, Moody’s Warns – Can ZAR Hold Strength?
The South African Rand may be buoyant today, but the high-risk currency could face significant downside pressure in the long-term.
Retail sales figures are set for release later today and could provide further temporary support to ZAR, given that forecasts are for a month-on-month recovery from -0.3% in May to 0.9% in June.
Year-on-year sales growth is expected to clock in at 2.2%, up from 1.7% in the previous month.
However, the longer-term outlook remains one in which growth suffers amidst rife political disorder.
Last week President Jacob Zuma managed to survive yet another vote of no confidence, although this one saw members of parliament balloted in secret, meaning several dozen members of Zuma’s own African National Congress (ANC) party had the confidence to vote against him.
Credit ratings agency Moody’s has warned that tensions within the ANC will be a drag on South Africa’s growth, commenting in its latest credit opinion statement;
‘Key constraints to growth are domestic, including political tensions and policy uncertainty.’
The Rand could therefore face long-term declines, as South Africa’s political turbulence is unlikely to ease off any time soon.