UK gilts continue to plunge tracking upbeat employment report, fall in June jobless rate

The UK gilts continued to plunge Wednesday after reading a, upbeat employment report, released today, with the rate of unemployment declining below what markets had initially anticipated amid deeper fall in the number of unemployment claims for the month of July. Investors will now focus on the country’s retail sales for the month of July, scheduled to be released on August 17 by 8:30GMT.

The yield on the benchmark 10-year gilts, jumped nearly 4 basis points to 1.12 percent, the super-long 30-year bond yields climbed 4 basis points to 1.78 percent and the yield on the short-term 2-year traded nearly 2 basis points higher at 0.25 percent by 10:40 GMT.

Today’s UK labour market figures for the 3 months to June left recent trends largely intact. The unemployment rate resumed its drift lower, dipping to 4.4 percent, a new post-crisis low, coming in a notch below both our and consensus expectations. Such an unemployment rate, matching the lows seen since the 1970s, would have historically indicated a tight labour market.

There were some signs that this tightness was having some effect on earnings growth. Overall, average weekly pay (including bonuses) accelerated to a 2.1 percent annual growth pace, while regular pay, arguably a stickier metric, also firmed to 2.1 percent. Still, for now, against a backdrop of quickening price inflation the prospect of a further squeeze on real pay growth remains likely in the second half of 2017.

Still, with inflation expected to rise further over the coming months and the labour market seemingly tight, workers may become more assertive in their wage demands to resist the depletion of their purchasing power. A more rapid pace of wage growth would raise concerns for some Bank of England policymakers that higher inflation is becoming embedded in expectations, warranting a tighter policy stance.

Meanwhile, the FTSE 100 rose 0.67 percent to 7,431.50 by 10:40 GMT, while at 10:00GMT, the FxWirePro's Hourly Pound Strength Index remained highly bearish at -110.00 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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