The British Pound Sterling, on Wednesday, August 16, recovered from its lowest levels against the euro in 10 months after data showed wages rising faster than expected in the three months to June, closing the gap to headline inflation.
Analysts had called for earnings to rise by as much as 1.8 percent and the 2.1 percent jump, along with a surprise drop in the number of unemployed in July, pushed sterling almost half a cent higher to trade at $1.2896.
That was still just 0.2 percent higher on the day. Against the euro, it gained 0.3 percent on the day to 90.88 pence, recovering from lows of 91.44 pence which were the pound’s weakest levels since last October’s flash crash.
Wage growth has tended to run well shy of price increases in recent years, deepening the pain for British households struggling with government budget cuts and undermining economic growth.
“This is undoubtedly good news for the man on the street, as it suggests that inflation pressures are starting to ease for consumers,” said Jake Trask, FX research director with OFX in London.
Britain’s FTSE 100, which tends to fall when the pound rises, pared gains slightly after the data, last trading 0.6 percent higher. Government bond futures fell.
A string of analysts cautioned not to read too much into the numbers, given that they still show pay trailing behind a headline inflation rate which has been driven to 2.6 percent by sterling’s losses since the Brexit referendum last year.
The first stages of talks with Brussels over Britain’s departure from the European Union have generated a series of negative headlines for the British, helping drive the pound almost 1 percent lower on Tuesday.
Few economists expect more positive messages from the talks in the near term and many worry that the uncertainty they generate will further hamper growth in the months ahead.
“The average earning index number was solid and this has pushed sterling up,” said Naeem Aslam, Chief Market Analyst, Reuters reports.
