UK gilts jump despite encouraging labour market, jobless rate stays at 45-year low

The United Kingdom’s jumped during European trading hours Tuesday even as the country’s labour market remained solid and promising, with the unemployment rate remaining at a 45-year low.

The yield on the benchmark 10-year gilts, remained flat at 0.625 percent, the 30-year yield remained tad down at 1.107 percent and the yield on the short-term 2-year remained range-bound at 0.532 percent by 11:20GMT.

Despite uncertainties over the longer-term outlook for the UK economy, employment in the three months to December rose by 180,000, beating market expectations (consensus: 148,000). Such a pace of job creation was sufficient to deliver further declines in unemployment (-16,000), keeping the jobless rate at a 45-year low of 3.8 percent, Lloyds Bank reported.

The report contrasts somewhat with the more-sober assessment of domestic activity trends made by the recent Q4 GDP report, the report added.

"An environment where the amount of output being produced for each hour worked remains low, while firms are having to pay more, means that unit labour costs – the cost of producing a unit of output – are rising. It is this dynamic that leads us to expect that domestically generated inflation pressures will continue to build. Overall, this latest news is a reminder that even current levels of pay growth – in a tight labour market – are inconsistent with market expectations of a lower level of Bank Rate," Lloyds Bank further commented in the report.

Meanwhile, the FTSE 100 slipped nearly 1 percent to 7,370.15 by 11:25GMT.