Drop in UK unemployment rate pushes up the pound

Analysts had forecast a 0.1% rise to 8.0% and so the figures will come as welcome surprise, and buoy sentiment toward the health of the economy. In addition, the number of people claiming jobless benefits also beat market forecasts, falling at its fastest pace for two and a half years in December. The data revealed that claimant count fell by 15,200, a further improvement for the 6,300 the previous month.

Duncan Higgins, senior analyst at Caxton FX stated, "Today’s figures will come as further evidence that the UK labour market is stabilizing. Though deep set concerns remain over the fiscal health of the nation, a falling unemployment rate is certainly a positive sign that conditions are improving. It should also give some solace to the government, whose extreme measures to combat the recession do appear to be taking effect."

Higgins continued, "The pound has found some support from the numbers, gaining slightly against the broadly weaker euro. However, there may now be a hint of profit taking, with investors cashing in on sterling’s consistent gains over the past week. There appears to be strong resistance at €1.15, so we may see the price struggle to go higher today."

The Bank of England Monetary Policy Committee meeting minutes from earlier this month were also released this morning. They showed that the committee agreed unanimously to maintain the current £200 billion level of quantitative easing. The markets do not appear to have reacted too strongly to the information.