Sterling hits 1-month high as British wage growth picks up

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LONDON, June 17 (Reuters) - Sterling rose to a one-month high against the dollar on Wednesday while UK gilt futures fell, after data showed wages in Britain growing faster than expected.

Total (Swiss: FP.SW - news) average weekly earnings in the three months to April, including bonuses, rose by 2.7 percent compared with the same period a year earlier, speeding up from 2.3 percent year-on-year growth in the three months to March. Excluding bonuses, pay picked up at a similar pace.

Economists polled by Reuters had forecast that total earnings would rise by 2.1 percent and that earnings excluding bonuses would increase by 2.5 percent.

Separately, minutes from the latest Bank of England meeting showed that the decision by two policymakers to hold interest rates at record lows was "finely balanced".

Sterling rose 0.55 percent to $1.5735, a one-month high, up from around $1.5677 before the data and the minutes were released.

The euro fell further, dropping to 71.615 pence from 71.97 beforehand, and its lowest level since June 1.

"Rising wages are a very good sign for the overall economy as it shows the situation is starting to normalise and employees feel more comfortable about asking for pay increases after 5 years of wages falling in real terms," said Andy Scott, associate director at HiFX.

"Sterling rose to a one-month high above $1.57 against the dollar, and to a three-week high against the euro."

The pound has broadly risen in recent weeks as some of the uncertainty from May's national election lifted with recent data showing Britain's economy growing more than previously estimated last year and in early 2015.

However, with consumer inflation rather subdued, traders do not expect the Bank of England to raise rates in a hurry. Data on Tuesday showed inflation just about turned positive again after dipping below zero in April for the first time in 55 years, suggesting Britain's flirtation with deflation was brief.

Focus will now turn to the Federal Reserve where policymakers will conclude a two-day policy meeting. Investors expect the Fed to intimate when U.S. interest rates will start rising this year.

"The $1.57 level for sterling/dollar might not last long as we await the Fed statement, at which point we should get clues as to whether to expect a Fed hike in September," said Alex Edwards, head of corporate desk at UKForex.

"If the signals are strong - which seems likely given recent rhetoric from various Fed officials - the dollar will most likely strengthen and sterling will come back down towards support at $1.55."

UK government bond futures gave up the day's gains after the data. September futures were last at 115.92, down 6 ticks on the day, compared with 116.10 beforehand. (Reporting by Anirban Nag; Editing by Nigel Stephenson and Raissa Kasolowsky)