UK stocks rise as weak labour data eases rate hike concerns

UK equities moved higher on Tuesday after weaker labour market data eased concerns over an immediate interest rate hike from the Bank of England.

The blue-chip FTSE 100 index rose 0.61% as of 11:13 am GMT, while the midcap FTSE 250 climbed 0.81%.

Fresh labour market data from the UK tax office showed that payrolls in April fell by 100,000 compared with March.

Meanwhile, the unemployment rate increased to 5% for the first quarter, up from 4.9% recorded in the three months to February.

Labour data cools rate hike concerns

The softer labour market figures led investors to reassess the possibility of further monetary tightening by the Bank of England.

Sanjay Raja, chief UK economist at Deutsche Bank, said the latest data could influence the central bank’s next move.

“Today's labour market report will not just make for an uncomfortable reading, it will likely stop the MPC (Bank of England's Monetary Policy Committee) in its tracks,” Raja said.

Market expectations for a June rate increase also remained subdued.

According to data compiled by LSEG, traders currently see a 29.1% chance of a rate hike at the Bank of England’s June meeting.

James Smith, ING’s developed markets economist for the UK, said the outlook for a June increase remained uncertain despite his current forecast.

“We're still forecasting a rate hike in June, but that is far from guaranteed,” Smith said, as mentioned in a Reuters report.

Equities gain breathing room amid political uncertainty

The rise in equities provided investors with some relief following a period of heightened political uncertainty in the UK.

On Monday, Prime Minister Keir Starmer reiterated that he would remain in office.

However, several lawmakers from his Labour Party have reportedly called for him to step down.

The political uncertainty had weighed on investor sentiment in recent sessions, although Tuesday’s market rebound suggested traders were focusing more closely on economic indicators and monetary policy expectations.

Banking and retail shares lead gains

Sector-wise, investment banking shares posted strong gains during the session.

The investment banking index advanced 2.58%, while retail stocks climbed 2.49%.

Among individual stocks, IG Group emerged as the top performer on the FTSE 100.

Shares of the company jumped 10.22% after it raised its annual and medium-term revenue forecasts for the second time this year.

The upbeat forecast helped lift sentiment across the financial sector and added further support to the broader UK market.

Investors now remain focused on upcoming economic data and signals from the Bank of England as markets continue to assess the outlook for interest rates and economic growth in the UK.