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Markets trim BoE rate cut bets after UK jobs data; pound gains

U.K. employment rose to a record high in the three months to November 2019 and wage growth defied expectations of a slowdown, dimming the chances of a rate cut by the Bank of England on Jan. 30 and sending the pound higher.

Official estimates from the Office for National Statistics showed that employment rose 208,000 quarter on quarter to a record high of 32.90 million. Year over year, employment grew 359,000.

The level of economic inactivity declined by 171,000 to 8.51 million, reflecting the largest quarterly fall since the three months to July 2012.

Average weekly earnings, including bonuses, grew 3.2% year over year in the three months to November 2019, compared to expectations for a 3.1% increase and a 3.2% growth rate in the three months to October 2019.

The ONS noted that the level of unemployment marginally decreased by 7,000 on the quarter to 1.31 million, but remained unchanged at 3.8% in the three months to November 2019, compared to the prior three months, in line with expectations.

The pound rose 0.3% to $1.3047 around 5:24 a.m. ET. Markets are currently pricing in a 62% probability of a rate cut by the Bank of England on Jan. 30, compared to a 72% likelihood of policy easing from Jan. 17 and 46% from Jan. 14, according to the BoE watch tool of the CME Group.

U.K. 10-year gilts were little changed.

A surprise contraction in the U.K.'s GDP, a weak inflation reading and disappointing U.K. retail sales fueled expectations that the central bank could ease its monetary policy as early as Jan. 30 to stimulate economic growth.

BoE policymaker Gertjan Vlieghe has said he would favor an interest rate cut at the upcoming meeting, if the U.K. economy does not rebound. Another monetary policy committee member, Silvana Tenreyro, also voiced support for a rate cut if the uncertainty surrounding the post-Brexit relationship between the U.K. and EU does not wane.

Earlier in January, outgoing BoE Governor Mark Carney said there is a debate within the BoE's Monetary Policy Committee over the relative merits of a near-term stimulus, or cut in the base rate, to help boost the sluggish U.K. economy. He also indicated that the central bank could pursue more stimulus measures to spur growth.