Sterling fell to a one month low against the euro after data showed Britain's bumper wage growth has slowed, as unemployment rose again.
Annual average weekly wages, including bonuses, rose 2.4 per cent in the three months to June, according to data released today by the Office for National Statistics. That's down from the 3.2 per cent growth in the three months to May, and it also missed economists' expectations for a 2.8 per cent rise.
At the same time, average pay excluding bonuses remained steady at 2.8 per cent in the quarter to June.
"Base effects were particularly pronounced this month ... [and] in this sense, the measure that excludes bonuses is likely to offer a ‘cleaner’ reading of the trend for earnings at this point in the year," Timo del Carpio, European economist at RBC Capital Markets, said.
The number of people looking for work rose by 25,000 to 1.85m during this period, meaning the unemployment rate rose slightly to 5.6 per cent in the three months to June, up from 5.5 per cent in the three months to May.
"This is now the second consecutive time we’ve reported fewer people in work on the quarter. While it’s still too early to conclude that the jobs market is levelling off, these figures certainly strengthen that possibility. Growth in pay, however, remains solid," David Freeman, an ONS statistician, said.
Bank of England (BoE) policymakers have said wage growth and unemployment will be a key metric for when it eventually decides to hike interest rates, a decision governor Mark Carney believes will come into sharper focus around the turn of this year.
Threadneedle Street has also said it expects the amount of slack in the economy to be used up over the coming year. But economists said this jobs report suggests it isn't happening as quickly as the Bank initially estimated, reducing the chances of an early rate rise.
"The pace of wage growth ... is unlikely to be inflationary considering the pause in employment growth. With the continued strength of sterling this makes any early move by the BoE to raise interest rates even less likely," Bill Robinson, Chief Economist at KPMG UK, said.
Additionally many think that the surprise cooling currently seen in the labour market is likely to be a temporary affair.
"We do ... see scope for labour market dynamics, and in particular wage growth, to pick up once again over the second half of the year. This should in part reflect our view of a continued narrowing in the degree of slack, but as confidence in overall job prospects improves, greater turnover within the labour market should also provide a source of upside support for wages over the coming months," del Carpio said.