Labour data props up struggling sterling

LONDON: Britain's pound recovered from its lowest levels against the euro in 10 months on Wednesday after data showed wages rising faster than expected in the three months to June, and the unemployment rate falling further.

Analysts had called for earnings to rise by as much as 1.8 percent and the 2.1 percent jump, along with a surprise drop in the number of unemployed in July, pushed sterling almost half a cent higher and briefly above $1.29.

But that was still just 0.2 percent higher on the day and the pound retreated to $1.2866 in afternoon trading in London.

Against a broadly weaker euro, it gained a quarter of a percent on the day to 90.96 pence, recovering from lows of 91.44 pence which were sterling's weakest levels since last October's flash crash.

Wage growth has tended to run well shy of price increases in recent years, deepening the pain for British households struggling with government budget cuts and undermining economic growth.

"Both of these numbers exceeded market expectations offering some reprieve for the pound," said Oanda analyst Craig Erlam.

"(But) the key takeaway from the release remains the fact that real wages are falling as wage growth lags behind inflation."

The first stages of talks with Brussels over Britain's departure from the European Union have generated a series of negative headlines for the British, helping drive the pound almost 1 percent lower on Tuesday.

Few economists expect more positive messages from the talks in the near term and many worry that the uncertainty they generate will further hamper growth in the months ahead.

JP Morgan analysts were among those recommending sales of the pound last week but others are more upbeat, arguing that the currency is over the worst of a sell-off sparked by the vote to leave the European Union just over a year ago.

"Sterling looks extremely undervalued on most measures," said UBS Wealth Management's Dean Turner, arguing that the pound's relatively more robust performance against the dollar since January suggests it is recovering.

"Brexit will change the UK's current trade relationship with the EU, but everything has its price," he said.