London close: UK stocks decline after labour market data disappoints

UK stocks ended Wednesday lower as investors processed disappointing UK jobs data and another devaluation of the yuan by China’s central bank.

The number of people employed in the UK in the three months to June fell 63,000 to 31.035m, more than the 55,000 drop expected by analysts, the Office for National Statistics revealed.

Average weekly earnings increased 2.4% during the period, compared to a forecast for a 2.8% gain. The number of unemployed people in Britain rose by 25,000 to 1.85m, 221,000 less than a year ago. The unemployment rate held at 5.6%, as predicted.

“The latest official labour market report brought a raft of disappointing news, with unemployment remaining unchanged, employment falling and headline pay growth slipping lower,” said Chris Wiliamson, chief economist at Markit.

“The sterling has consequently taken a hit as expectations of when the Bank of England will hike rates have been pushed back.”

The BoE last week decided to keep interest rates unchanged at 0.5% as Governor Mark Carney said the timing of an increase was drawing closer but the exact timing could not be predicted and will be "data dependent".

Meanwhile, the People’s Bank of China has moved again to cut its national currency, the yuan, by another 1.6%, after Tuesday's 1.9% devaluation.

The action was the biggest two-day lowering of the yuan against the dollar in more than two decades.

China's commerce ministry said the lower rate would help struggling exporters.

Accendo Markets analysts Mike van Dulken and Augustin Edin said the decision has fuelled “concern that market volatility from a new round of currency wars could curb global growth outlook”.

“With yesterday’s move giving rise to worries that growth in the world’s No.2 economy is even slower than thought/published, today’s move just before another round of weak China data just adds fuel to the fire with Retail Sales, Industrial Production and Fixed Asset Investment all missing consensus and slowing in July,” they added.

Chinese industrial production rose 6% year-on-year in July, well below forecasts for an increase of 6.6% and the previous month’s 6.8% gain.

Chinese retail sales climbed 10.5% in July, compared to analysts’ projections for a 10.6% rise in line with June’s growth.

“The data are weaker than expected which will undoubtedly add to speculation that policymakers are trying to engineer a sustained devaluation of the renminbi in order to shore up growth,” said Julian Evans-Pritchard, China economist at Capital Economics.

On another negative note for markets, doubts were cast on whether a €85bn third bailout agreed in principal between Greece and its creditors had the full support of all European Union members.

Greece’s parliament said on its website that MPs will hold an emergency session to ratify the text of the country’s new bailout programme on Thursday. A vote is expected by Friday.

Greece needs the funds before a €3.4bn debt payment is due to the European Central Bank on 20 August.

Company news

Pearson edged down after selling a 50% stake in the Economist Group to existing shareholders for £469m.

Unilever slumped after Goldman Sachs downgraded the stock to ‘sell’ from ‘neutral’ and cut its target price to 2,560p from 2,820p.

G4S declined after the outsourcing and security group reported a 12.5% drop in first-half profit, reflecting restructuring charges and one-off costs.

Reckitt Benckiser was in the red after being ordered to license the K-Y personal-lubricant brand in Britain to a competitor for eight years after the UK competition regulator found that its purchase of the label could lead to price increases.

ARM Holdings slipped after fears Chinese demand for one of the products of one of its biggest clients, Apple, would be reduced.

On the upside, a three week high in gold prices helped miner Randgold to the top of the FTSE 100 index.

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