Sterling soars as UK wage growth puts early rate rise back in focus

STERLING soared against the dollar and the euro as a surge in wages and hawkish comments from the Bank of England put an early interest rate rise back on the cards.

The pound jumped nearly two cents or 1.3pc against the greenback to as high as $1.5528 and 1.69 cents or 1.2pc against the single currency to €1.3760 before easing.

‘Sterling is having an absolute blinder,’ said Ranko Berich, head of market analysis at foreign exchange company Monex Europe.

The rally started after figures from the Office for National Statistics showed wages are rising at the fastest pace for almost seven years – up by an average 2.9pc in the last year alone.

That was the biggest increase since January 2009 and with inflation currently at zero the rise in ‘real wages’ adjusted for prices is the highest since August 2002.

The ONS said the number of people in work rose by 42,000 to 31.1m between May and July while the unemployment rate fell to 5.5pc from 6.2pc a year earlier.

Chris Williamson, chief economist at research group Markit, said: ‘The long-awaited upturn in pay, which has been the missing element of the UK’s economic recovery, looks to be finally upon us, reviving the prospect of a rate hike by the end of the year.’

Bank of England governor Mark Carney ( pictured) hinted rates could rise late this year or early next year as the economy recovers and wages pick up. He told MPs the prospect of ‘sustained momentum’ in the UK and higher inflation ‘will likely put the decision as to when to start the process of raising rates into sharper relief around the turn of this year’.

The Canadian insisted that any rate hikes – from the record low of 0.5pc – are likely to be ‘gradual and limited’ and conceded that the Bank ‘will have to feel its way as it goes’.

Appearing alongside Carney, Kristin Forbes, a fellow member of the ratesetting monetary policy committee, said ‘rates will need to increase in the not-too-distant future to ensure that inflation does not overshoot our 2pc target’ in the coming years.

Andy Scott, an economist at currency experts HiFX, said: ‘Sterling rallied against both the dollar and the euro following stronger than expected figures on UK wage growth. The news supports those at the Bank of England who are signalling rates will need to rise sooner rather than later.’