The UK gilts slumped on Wednesday after data showed that the country’s labour market strengthened in June. The yield on the benchmark 10-year gilts rose more than 1 basis point to 0.811 percent, the yield on super-long 30-year bond jumped nearly 2 basis points to 1.688 percent and the yield on short-term 2-year bonds bounced nearly 1 basis point to 0.184 percent by 10:00 GMT.
The UK labour market report surprised investors with a dip in the ILO-based unemployment rate, which fell to 4.9 percent in the three months to May, the lowest since October 2005, as compared to 5 percent in the three months to April. Also, employment surged 176k in the three months to May. The Britain’s average weekly earnings for the three months to May climbed 2.30 percent y/y, in the line of market consensus, as compared 2.2 percent a year earlier, which was short of the forecast 2.3 percent.
This is clear evidence of a tightening labour market that's also being reflected in a hardening of the annual rate of growth in average weekly earnings, to 2.3 percent y/y in the three months to May, as compared to 2.0 percent y/y in the three months to April. Moreover, the UK claimant count increased by just 0.4k , against market expectations for a rise of 3.5K.
In addition, the Prime Minister Theresa May told the EU's President Donald Tusk that Britain needs to carefully prepare for Brexit negotiations before triggering Article 50, while Tusk reassured PM May that he would help to make the Brexit process happen 'as smoothly as possible' according to PM May's spokeswoman.
On Tuesday, the June UK inflation stats show an in-line-with-expectations 0.2 percent m/m rise in the CPI that takes the annual rate up to a higher-than-expected 0.5 percent y/y rate from 0.3 percent y/y in May, with the annual core inflation rate also higher than predicted, at 1.4 percent y/y, as compared to 1.3 percent expected, also on the back of a 0.2 percent m/m rise.
The acceleration comes from pickups in both the goods and services sectors, with a significant jump in road fuel costs pushing up transportation costs in particular. This causes Q2 CPI annual inflation to edge higher, to 0.4 percent y/y, in line with the BoE's central case prediction in May, from 0.3 percent y/y in Q1. This reading eases pressure from the central bank to loose monetary policy if output prices rally over the next few months.
Meanwhile, the FTSE 100 trading up 0.28 percent at 6,716 by 10:00 GMT.
