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U.K. stocks, pound down as wages lose momentum

The Bank of England has halved its wage growth expectation to 1.25 percent, suggesting that rate hikes may come later than expected.
By Ananth Baliga   |   Aug. 13, 2014 at 3:21 PM   |   Comments

LONDON, Aug. 13 (UPI) -- The pound dropped to its lowest level since April, as the Bank of England cut its forecast for wage growth, suggesting it will push back its rate increase.

The Bank of England Governor Mark Carney said that rate increases would be limited and resulted in money market investors pushing back their bets on a rate increase to May 2015. Carney's comments came after a report released Wednesday showed that wages declined for the first time since 2009, even as unemployment fell.

"Small, slow increases in bank rate should help mitigate the risk that higher borrowing costs trigger a sharp slowdown in domestic demand," said Carney.

The Sterling also dropped 0.7 percent to $1.6696 at4:19 p.m. London time, depreciating 0.8 percent to 80.14 pence per euro, as the currency proceeded to weaken against all 16 major counterparts.

Despite Britain seeing a faster pace of growth than the rest of Europe, wages declined, which was quickly seized upon by the opposition Labour Party.

Prime MInister David Cameroon and his party have been boasting of the quick pace of growth and falling unemployment, as the country is little less than a year away from general elections.

According to the Inflation Report, the British economy is expected to grow at an annual pace of 3.5 percent in 2014, and maintain a 2.9 percent growth rate through 2015.

Wednesday's currency drop comes on the back of an 8.8 percent appreciation in the Sterling in the past 12 months, according to the Bloomberg Correlation-Weighted Indexes. Investors have been estimating an early rise in rates, the first since 2007.

Follow @antbaliga and @UPI on Twitter.
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