British equities gain on Tuesday as signs of a softer labour market reduce investor concern about an immediate Bank of England rate increase. The move lifts both blue-chip and midcap indexes and offers some relief after a stretch of heightened political uncertainty in the UK.
Highlights
- FTSE 100 climbs 0.61% and FTSE 250 rises 0.81% by 11:13 a.m. GMT as weak labour data reduces rate hike expectations.
- UK April payrolls drop by 100,000 from March and unemployment rate increases to 5% in Q1 from 4.9%, dampening rate hike prospects.
- Investment banking stocks gain 2.58%, retailers rise 2.49%, and IG Group soars 10.22% after twice raising revenue forecasts for the year.
Labour data and rate expectations support shares
As reported by Reuters, the FTSE 100 rises 0.61% by 11:13 a.m. GMT, while the FTSE 250 adds 0.81% after fresh labour market figures point to weaker employment conditions.Data from the tax office show April payrolls fall by 100,000 from March, while the unemployment rate edges up to 5% in the first quarter from 4.9% in the three months to February. Sanjay Raja, chief UK economist at Deutsche Bank, says the report is likely to stop the Bank of England's Monetary Policy Committee in its tracks.
Traders now price in a 29.1% chance of a rate hike at the June meeting, according to LSEG data. James Smith, ING's developed markets economist for the UK, says his base case still points to a June increase, but that outcome is far from certain.
Sector gains and political backdrop shape market mood
The rebound in equities gives investors some breathing room after a period marked by elevated political uncertainty. On Monday, Prime Minister Keir Starmer reiterates that he will remain in office, even as several Labour lawmakers call for him to step down.Investment banking stocks lead sector gains with a 2.58% rise, while retailers advance 2.49%. IG Group jumps 10.22%, making it the top gainer on the FTSE 100 after raising its annual and medium-term revenue forecasts for the second time this year.
In our earlier article on the cooling UK labour market, we noted that job vacancies fell to 705,000 and payroll employment was turning lower, with provisional data pointing to a sharp drop in April. We also highlighted that softer hiring and mixed wage trends were easing pressure on the Bank of England ahead of its June meeting, influencing expectations for whether rates would need to rise.
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