By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- U.K. stocks moved lower for a second
straight day on Wednesday, after stronger-than-expected
unemployment data added more pressure on the Bank of England to
hike its key lending rate.
The FTSE 100 index lost 0.5% to 6,838.59, setting it on track
for the lowest level in almost a week.
The benchmark opened in negative territory, but nudged a leg
lower mid-morning after labor-market data beat expectations and
raised calls for the BOE lift interest rates. The U.K. joblessness
level for the three months to April fell to 6.6% from 6.8% in the
three months to March, beating forecasts of a 6.7% reading.
Meanwhile, the number of people claiming jobless benefits fell by
27,400 in May compared with April, marking the 19th straight month
the claimant count has fallen and coming in stronger than
anticipated.
"The latest U.K. employment report was simply exceptional," said
Nick Beecroft, senior markets analyst at Saxo Bank, in a note. "The
pressure on the MPC is mounting."
The BOE's Monetary Policy Committee, the MPC, has sketched out a
range of economic measures that need to improve before it considers
raising interest rates from the current record low, with the labor
market an important factor.
After scrapping its initial forward guidance, which focused only
on the headline unemployment rate, the MPC has given more weight to
other labor-market factors, such as wage growth.
And the latest U.K. salary numbers weren't great. In the three
months to April, average earnings including bonuses rose 0.7%, down
from growth of 1.9% in the three months to March. With inflation at
1.8% in April, that weak growth effectively means that real wages
are shrinking.
The slow salary increase in April was mainly due to the impact
of a top-bracket income tax change that boosted pay this time last
year, Chris Williamson, chief economist at Markit, noted in emailed
comments.
"Weak pay growth and the 'cost of living crisis' remains the
Achilles heel of the economic recovery, but it should not be long
until we see earnings growth accelerate as the labor market
continues to tighten," he said.
The pound (GBPUSD) rose after the data, trading at $1.6795, up
from $1.6753 late Tuesday.
In corporate moves, airlines were lower after a profit warning
from Deutsche Lufthansa AG . Shares of International Consolidated
Airlines Group SA -- the parent of British Airways -- lost 4.8% and
EasyJet PLC gave up 3.3%.
Analysts also noted that the World Bank's forecast downgrade for
global growth and Emirates canceling an order for 70 Airbus
aircraft have raised concerns about future volumes of passenger
traffic.
Engine-maker Rolls-Royce Holdings PLC said its order book will
fall about 3.5% after the Emirates cancellation, which sent its
shares 2.1% lower.
On a more upbeat note, shares of J Sainsbury PLC gained 2% after
the supermarket chain said first-quarter sales fell 1.1%, which was
in improvement on the 3.1% sales drop reported in the fourth
quarter.
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