London midday: Stocks push up as pound slips after employment data

London stocks had extended gains by midday on Wednesday as the pound ticked down after data revealed that real wages have fallen but unemployment has held steady in the UK.

The FTSE 100 was up 0.5% to 7,536.18, while the pound was down 0.2% versus the euro and the dollar at 1.1359 and 1.2730, respectively.

Sterling reversed its earlier course as figures from the Office for National Statistics showed the squeeze on UK households is tightening, with wage growth continuing to slow amid a spike in inflation, meaning real wages are falling at the fastest pace in three years.

IG analyst Joshua Mahony said: "After yesterday’s sharp rise in UK inflation, this morning’s unexpected drop in average earnings highlights a sharp rise in the cost living in the UK. Given the continued rise in inflation despite the recent decline in energy prices, there is a fear that UK consumers will be squeezed even more if we see oil prices turn higher."

UK average weekly wages for the three months to April, excluding bonuses, grew just 1.7% in the period, down from 1.8% and shy of the consensus forecast of 2%. Weekly earnings including bonuses slowed to 2.1% from a revised 2.3% a month ago, which was well short of the market's estimated rise to 2.4%.

With inflation averaging 2.4% over the three-month period and CPI jumping to 2.9% in April, UK real earnings are being squeezed significantly. This meant inflation-adjusted annual wage growth for total average earnings was negative for the first time since September 2014, down 0.4%, with the basic pay rate down 0.6%.

This comes despite the ILO unemployment rate for the three months to April staying at 4.6%, the lowest since 1975, as expected.

Furthermore there was a 109,000 increase in employment compared to the preceding three-month period, or up 372,000 compared to last year, meaning the proportion of people of working age in employment was 74.8%, which is the joint highest since comparable records began in 1971.

Across the pond, the Fed's rate decision is at 1900 BST. With economists almost certain interest rates will be lifted by another 25 basis points to between 1.00% and 1.25%, the focus will be on what Fed Chair Janet Yellen has to say about any future hikes.

On the UK political front, Prime Minister Theresa May was expected to announce a pact with Northern Ireland's Democratic Unionist Party later on Wednesday amid comments from former PM David Cameron said there would be pressure on May to opt for a softer exit from the EU. May confirmed on Tuesday that Brexit negotiations will begin as scheduled next week.

In corporate news, an encouraging update from FTSE 250 housebuilder Bellway provided a fillip to rest of the sector, lifting peers on the top-flight index such as Barratt Developments, Taylor Wimpey and Persimmon. Bellway said housing completions for the year to the end of July are expected to have grown 10% from last year's 8,721, marking another year of significant volume growth and ahead of its original target.

WH Smith shares gained as it said sales growth remained almost unchanged in the third quarter, with the retailer's profits margins said to be improving.

British American Tobacco advanced after saying earnings for the half year have been lifted by exchange rates and that it expects to outperform the industry with its interim results later this month.

CLS Holdings rose as it announced the acquisition of a portfolio of 12 office buildings for €148m, while Aggreko powered ahead after saying it has acquired Indonesia-based power rental company KBT for up to $32.8 m.

Market Movers

FTSE 100 (UKX) 7,536.18 0.48%
FTSE 250 (MCX) 19,999.43 0.70%
techMARK (TASX) 3,606.34 0.72%

FTSE 100 - Risers

Fresnillo (FRES) 1,686.00p 2.74%
Centrica (CNA) 202.30p 2.69%
Barratt Developments (BDEV) 590.00p 2.52%
Direct Line Insurance Group (DLG) 361.50p 2.15%
Taylor Wimpey (TW.) 182.00p 2.02%
Old Mutual (OML) 202.80p 1.81%
Persimmon (PSN) 2,432.00p 1.71%
Admiral Group (ADM) 2,092.00p 1.55%
St James's Place (STJ) 1,214.00p 1.51%
Rentokil Initial (RTO) 280.00p 1.45%

FTSE 100 - Fallers

Ashtead Group (AHT) 1,556.00p -2.75%
GKN (GKN) 350.50p -1.30%
Lloyds Banking Group (LLOY) 68.04p -0.80%
Royal Bank of Scotland Group (RBS) 250.70p -0.59%
Micro Focus International (MCRO) 2,395.00p -0.58%
United Utilities Group (UU.) 983.00p -0.41%
Mediclinic International (MDC) 810.00p -0.31%
Sky (SKY) 973.00p -0.26%
Compass Group (CPG) 1,662.00p -0.12%
Rio Tinto (RIO) 3,214.00p -0.11%

FTSE 250 - Risers

Aveva Group (AVV) 2,053.00p 5.12%
Bellway (BWY) 2,975.00p 4.39%
esure Group (ESUR) 296.60p 4.14%
Vectura Group (VEC) 118.00p 3.78%
Millennium & Copthorne Hotels (MLC) 466.90p 3.71%
Aggreko (AGK) 917.50p 3.38%
ZPG Plc (ZPG) 363.50p 3.24%
Countryside Properties (CSP) 334.30p 3.02%
Stagecoach Group (SGC) 209.50p 3.00%
Supergroup (SGP) 1,561.00p 2.90%

FTSE 250 - Fallers

Hochschild Mining (HOC) 273.90p -3.62%
Auto Trader Group (AUTO) 400.30p -1.67%
Sophos Group (SOPH) 439.80p -1.59%
Mitie Group (MTO) 280.60p -1.54%
Halma (HLMA) 1,162.00p -1.36%
Evraz (EVR) 190.30p -1.30%
Just Group (JUST) 129.80p -1.29%
Drax Group (DRX) 360.00p -1.10%
Euromoney Institutional Investor (ERM) 1,153.00p -0.69%
Kennedy Wilson Europe Real Estate (KWE) 1,099.00p -0.54%