U.K. borrowing costs, as measured by the yield on short-dated government bonds, rose above levels last seen following Britain’s market-destabilizing “mini-budget” after labor market data showed rising wage growth on Tuesday.
The yield on two-year gilts hit 4.754% at 10:13 a.m. London time, according to Refinitiv data, surpassing the 4.750% level set on Sept. 28.
It is the highest level since late Aug. 2008.
U.K. annual average wage growth excluding bonuses accelerated from 6.6% to 7.2% in the February-April quarter. Economists polled by Reuters had expected 6.8% wage growth for the reported first period since the national hourly minimum wage was increased to £10.42 ($13.1), from £9.50.
Real pay, adjusted for inflation, showed pay growth was down by 2% including bonuses, and by 1.3% excluding them.
The report from the British Office for National Statistics showed the employment rate rose 0.2 percentage points over the same period, as the number of people in work hit a record high. Unemployment was 0.1 percentage points higher because of a decline in the number of “economically inactive” people not in work or looking for work.
Economists were quick to forecast a sharp rise in gilt yields on the back of the data, which fueled expectations for the Bank of England’s rate hikes.
Samuel Tombs, chief U.K. economist at Pantheon Macroeconomics, said the numbers were “fanning the impression that the U.K. has a unique problem with ingrained high inflation.”