Sterling bounces off five-month low against the euro after April pay data

Sterling pulled away from five-month lows against the euro today after UK wages in the three months to April rose faster than expected.

The pound has been on the backfoot in recent weeks as investors sit on the sidelines while the contest to succeed Theresa May as leader of the Conservative party and country heats up.

Worse than expected data yesterday which showed that the British economy shrank by 0.4% in April added to the pound’s worries.

But sterling found some relief after wage growth in the three months to April came in at 3.1%, exceeding a forecast by a Reuters poll of economists for 3%.

UK employment growth slowed but the jobless rate held at its lowest since 1975, the official figures showed.

Wage growth is outstripping inflation and the Bank of England has said it will need to raise interest rates – probably faster than the market expects – to keep inflation close to its 2% target.

The pound recovered from five-month lows against the euro of 89.325 pence, hit earlier in the session and rose 0.2% to 89.02 pence.

Against the dollar, the British currency rose 0.2% to $1.2711 from around $1.2694 before the data.

Investors have largely ignored economic data releases in Britain recently, believing the Bank of England is unlikely to act until Britain decides how, when and even if it will leave the European Union.

The UK is scheduled to exit the bloc on October 31.

David Cheetham, an analyst at online broker XTB, said the UK economy looked to be far from thriving but given the “dual headwinds of ongoing political uncertainty and a slowing global economy” current levels of activity were about as good as could be expected.

Analysts at Danske Bank said softer UK data in recent weeks, including the GDP numbers, suggested “the economy is likely to see a minor deterioration in fundamentals, which is set to weigh on sterling.”

Investors are concerned the next British prime minister could put the country on course for a no-deal Brexit after Theresa May failed to get her withdrawal agreement through parliament.

Eurosceptic Boris Johnson is the bookmakers’ favourite to win the contest.

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