Pound Sterling jumps to 26-year high

All those bonuses for City fat cats now seem to be hitting the UK market, as employment and earnings data released today further fuelled inflationary worries. The pound sterling jumped another 2% to hit a 26-year high earlier in the day, and ended over the $2 mark as more data released today showed an unexpected jump in wages to a 3-year high. Concerns over an impending rate hike pushed FTSE down midday Wednesday by 0.46 %.

A day after the Bank of England governor had to explain why inflation is higher than target, the new data hardened expectations that the Bank of England will go in for another interest rate hike soon. Both the rise in inflation and earnings are higher than was estimated by analysts and the market.

The office of national statistics today released data showing that average earnings including bonuses rose by by 4.6 per cent in the year to February 2007, up from 4.2 per cent in January, while at the same time it said that the trend in the employment rate has started to fall, while unemployment rate is static. The number of economically active people in the UK has also dropped. At the same time, the number of job vacancies for the three months to March 2007 is higher, both on the quarter and the year.

The increase in the average earnings rate including bonuses was explained by strong growth in the latest two months in the private sector services sector, driven by higher bonuses in the financial intermediation sector. Average earnings excluding bonuses or regular pay, rose by 3.6 per cent in the year to February 2007, unchanged from January.

At the same time as higher bonuses tighten rate hike fears, employment data showed that the redundancy rate for the three months to February 2007 was 5.8 per 1,000 employees, up 0.4 over the quarter. However, people seeking jobseekers allowance continued to fall, for the 8th time out of the past 9 months.