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FTSE 100 lags European peers on strong pound

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UK stocks advanced on Tuesday on hopes that China would ease its COVID-19 curbs and regulatory scrutiny, although strength in the pound following an upbeat employment report capped gains for the export-oriented FTSE 100.

The blue-chip index rose 0.7%, but lagged its continental peers as the pound jumped more than 1%.

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Britain’s unemployment rate fell to its lowest since 1974 in the first quarter of 2022, but soaring inflation led to the biggest annual fall in real earnings excluding bonuses since 2013.

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“Even if employment stays supported, we suspect we will still see some of the impetus behind wage growth fade. This underscores the message from the BoE (Bank of England) that it probably won’t need to hike too much further over the coming months,” ING economist James Smith said in a note.

BoE Governor Andrew Bailey said on Monday the current surge in inflation was the central bank’s biggest challenge since it gained independence in 1997.

The BoE earlier this month raised interest rates to their highest level since 2009, but warned that Britain risks a recession.

Still, a large presence of commodity-linked and defensive stocks in the FTSE 100 has helped it outperform this year as the Ukraine war boosted oil and metal prices, while concerns about a global economic slowdown drew investors to less risky stocks. The index is up 1.8% so far in 2022.

Among top movers on Tuesday, Imperial Brands jumped 5.6% after reporting a marginal increase in first-half sales, helped by demand for e-cigarettes and heated tobacco products.

ContourGlobal surged 33.7% to the top the FTSE midcap index after KKR & Co agreed to buy the London-listed power generation firm for 1.75 billion pounds ($2.16 billion).

British mobile operator Vodafone dropped 1.9% as it forecast earnings growth below market expectations for the current year.

Strength in sterling dented shares of global companies such Unilever, AstraZeneca and GlaxoSmithKline . Societe Generale downgraded Unilever’s stock to “sell.”

(Reporting by Sruthi Shankar in Bengaluru; Editing by Subhranshu Sahu and Aditya Soni)

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