Growth in average earnings in Britain surged again in April, upsetting the financial markets and increasing the chances of another interest rate rise soon.
The Office for National Statistics reported headline earnings growth of 5.4 per cent for the three months centred on April, up from a revised 5.3 per cent the month before. Strong earnings were the principal reason the Bank of England raised interest rates last month to 7.5 per cent, a move that stunned markets at the time but now looks to have been prescient.
Sterling gained over a pfennig to almost 2.95 deutschmarks, regaining the ground it lost in the wake of Tuesday's lower-than-expected inflation data. However, it fell back later in the day and following some buying of the pound the Irish currency closed at 85.60p from 85.36p a day earlier.
Mr Jim Power, chief economist at Bank of Ireland, said there is an ongoing interest in selling dollars to buy pounds at the moment.
He added that the average earnings numbers are on the "worrying side" from an interest rate point of view. "The case is building up for a sharp sterling fall over the coming months."
In addition, gilts, interest rate futures and shares fell sharply as markets realised the earnings figures meant rates were more likely to move up again than down. The FT-SE 100 index of leading shares retreated from earlier record highs, shedding about 50 points to stand at 6,129, up 29 points from Tuesday's close.
The Chancellor of the Exchequer, Mr Gordon Brown, told a parliamentary committee wages in the private sector were rising too fast. "A wage rise today could mean the risk of an interest rate rise tomorrow, and that was exactly the position the Bank of England took last month." The ONS also reported a second successive monthly rise in unemployment measured by claimant count. The number of people claiming jobless benefit climbed by 700 in June, after an upwardly revised rise of 4,300 in May. The unemployment rate remained at 4.8 per cent.
Minutes from the June meeting of the Bank of England's Monetary Policy Committee, released at the same time, showed that eight of the nine members voted for the interest rate rise that hit financial markets amidships. The June rise was the first rate move since last November.
