By Sara Sjolin, MarketWatch
LONDON (MarketWatch) -- U.K.'s FTSE 100 index pulled back on
Wednesday after better-than-expected unemployment data sparked
fears the Bank of England will raise interest rates sooner than
expected.
The FTSE 100 index was flat at 6,828.01, but swung between small
gains and losses.
The benchmark traded as high as 6,864.87 earlier in the day, but
started paring losses as the Office for National Statistics said
the joblessness rate in the three months to November dropped to
7.1%, closing in on the Bank of England's threshold of 7% for
considering raising interest rates. In the three months to October,
the joblessness rate was 7.4% and analysts had expected the
November reading to come in at 7.3%.
The labor market in the U.K. has been closely watched since last
summer, when the BOE provided its first forward guidance and said
it would keep rates at a record low until the unemployment rate
drops at least to 7%. The central bank said, however, in minutes
from its January meeting -- also out on Wednesday -- that even if
the 7% unemployment threshold were to be reached in the near
future, there is no immediate need to raise the interest rate.
Christian Schulz, senior economist at Berenberg, noted that with
a fall in claimant counts in the December, the 7% level may have
been hit at the end of 2013, more than two years earlier than the
BOE expected when it initially introduced the forward guidance.
"The Bank of England is not under immediate pressure to act even
if the 7% threshold is being hit. Wage growth remains very low and
inflation reached the 2% target in December and could decline
further in the short term," he said in a note.
The pound (GBPUSD) jumped after the data, trading at $1.6560
compared with $1.6473 late Tuesday.
Among notable movers in London on Wednesday, shares of Sage
Group PLC rising 3% after the software firm said trading across all
regions remains in line with expectations.
Banks added pressure on the U.K. index, with shares of Royal
Bank of Scotland Group PLC (RBS) down 2.8%, Barclays PLC (BCS) off
0.8% and heavyweight HSBC Holdings PLC (HSBC) 0.5% lower.
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