The FTSE 100 (^FTSE) closed 0.7% lower after a bumpy day in London, following Asian equities lower even as promising signs emerged from the UK's labour market.
Earnings growth (including bonuses) hit 8.8% in April to June, according to the latest Labour Market Statistics from the Office for National Statistics (ONS).
Job vacancies were also at a record high of 953,000 in May to June, surpassing 1 million in July.
Meanwhile, the unemployment rate fell to 4.7% in April to June.
“The extremely large number of vacancies waiting on the shelves tells us there is an elevated level of frictional unemployment, as the jobs market transitions back towards normality," said Laith Khalaf, head of investment analysis at AJ Bell.
ONS deputy statistician Jonathan Athow said the "world of work continues to rebound robustly" from the pandemic.
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The data showed payrolls rose by 182,000 between June and July, although at 28.9 million it is still 201,000 lower than before the pandemic struck.
“I know there could still be bumps in the road but the data is promising — there are now more employees on payrolls than at any point since March 2020 and the number of people on furlough is the lowest since the scheme launched," said chancellor Rishi Sunak.
Despite promising signs, the data has put into question the future of the state pension triple lock — a key Conservative manifesto pledge.
An 8% rise in the state pension, tied to earnings growth, would raise questions of intergenerational fairness, as well as fiscal sustainability.
That’s particularly the case given the statistical distortions caused in the headline earnings figures by the pandemic.
"Traders will be looking very closely at the upcoming US retail sales number, industrial production number and the Fed chair Powell’s speech," said Naeem Aslam, chief market analyst at AvaTrade.
"These events are very much likely to drive the price action over in the US for equities and most likely to bring higher volatility as well."
Overnight in Asia, there was another day of heavy selling, with the Hang Seng (^HSI) losing around 2.1% by the end of the session, the SSE Composite (000001.SS) declining 2.3% and Japan's Nikkei (^N225) pulling back 0.4%.
"As per China’s National Bureau of Statistics, industrial production has risen a mere 6.4% as compared to the projected 7.8%. Similarly, retail sales were expected to jump 11.5%, but in actuality rose by a meagre 8.5%. Rising coronavirus cases are likely to be fuelling the slowdown," said Aslam.
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