[1/2]Sterling notes and change appear inside a cash register at a cafe in Manchester, Britain, September 21, 2018. Photograph: Phil Noble/Reuters. Obtaining licensing rights
LONDON (Reuters) – The pound steadied on Tuesday after data showed British wage growth remained strong in July even as the labor market weakened, painting an unclear picture ahead of the Bank of England’s decision next week.
The British pound rose after the data was released but pared its gains and was last settled at $1.2507, after rising 0.35% on Monday.
British wages excluding bonuses rose 7.8% from a year earlier in the three months to July, figures from the Office for National Statistics showed on Tuesday, in line with economists’ expectations and matching the record pace set in June. Wages, including bonuses, rose by 8.5%, compared to 8.4% in the previous month.
The strong wage growth came even as the unemployment rate rose to 4.3%, from 4.2% in June.
“Labor market tightness continued to ease in July,” said Ashley Webb, a British economist at consultancy Capital Economics.
“But a further rise in wage growth will only further worry the BoE and support our view that the bank will raise interest rates again, from the current 5.25% to a peak of 5.50%, next week.”
The euro fell in the latest trading by 0.17% against the pound at 85.79 pence, with little change from what it was before the data.
The pound has been one of the best-performing currencies this year, rising 3.4% since the start of January, but it has fallen in recent weeks as cracks in the UK labor market begin to appear and the dollar strengthens.
The unemployment rate rose to 4.3% from 3.8% in April and 3.5% in August 2022.
However, wage growth has remained resilient, putting policymakers at the Bank of England in a difficult position.
Catherine Mann, the Bank of England’s rate-setting official, said on Monday that it was too early for the Bank of England to stop raising interest rates, and that it was better for the central bank to err on the side of raising them too high.
Pricing in derivatives markets showed that traders see an 82% chance that the Bank of England will raise interest rates by 25 basis points on Thursday next week and an 18% chance of leaving them unchanged.
The dollar index, which measures the greenback against six major currencies, rose 0.12% to 104.69 on Tuesday.
The currency has risen about 5% since mid-July as the US economy remains strong while other parts of the world slow, pushing investors towards the safe-haven currency.
Reported by Harry Robertson. Edited by Amanda Cooper and Ed Osmond
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