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Gilt yields surged to the highest since 2008, surpassing the level reached during the turmoil following Liz Truss’s mini Budget, after strong UK wage growth data on Tuesday.

Wage growth accelerated in the three months to April against a backdrop of rising employment, raising the likelihood of further interest rate rises.

Two-year gilt yields rose 0.1 percentage points to 4.73 per cent, compared with its peak of 4.61 per cent in the aftermath of the announcement of unfunded tax-cuts in the mini Budget in late September.

The pound gained 0.4 per cent in early trade, rising to $1.256.

The Office for National Statistics said average private sector wages, excluding bonuses, were 7.6 per cent higher than a year earlier over the three months, the fastest pace of growth on record outside the coronavirus period. Average public sector wages were 5.6 per cent higher.

Across all employees, annual growth in total pay, including bonuses, picked up pace to 6.5 per cent, faster than analysts had expected.

Although pay is still not rising fast enough to match the rate of increase in households’ living costs, economists said wage growth was well above levels consistent with the Bank of England’s 2 per cent inflation target, underlining the case for the central bank to continue raising interest rates.

“If there was still any doubt about the direction of monetary policy, these data should solidify another interest rate increase from the bank of England next week and probably more in the coming months,” said Yael Selfin, chief economist at KPMG.

Thomas Pugh, economist at the audit firm RSM UK, said the data suggested a further quarter point rise in interest rates at next week’s meeting of the monetary policy — which would take the BoE’s benchmark rate to 4.75 per cent — was now a “sure bet”.

Samuel Tombs, chief UK economist at the consultancy Pantheon Macroeconomics, said wage growth had “far too much momentum” for the monetary policy committee to stop raising rates. Although analysts had expected April’s increase in the statutory minimum wage to cause a one-off bump in pay, he noted, the data showed wage growth was being driven primarily by higher-paying sectors such as finance and manufacturing and could therefore be expected to continue at a similar pace.

Although hiring has slowed sharply over the past year — with the ONS data showing a further fall in the number of vacancies — the data contained few other signs of weakness. A previous drop in the number of payrolled employees was revised away. The ONS said the unemployment rate averaged 3.8 per cent in the three months to April, up from 3.7 per cent in the previous quarter but down from last month.

Meanwhile, the number of people in employment rose to a record high, although the employment rate, at 76 per cent, remains below its pre-pandemic level. The share of UK adults choosing not to work or job hunt remains higher than before the pandemic, with no further drop in the rate of economic inactivity in the last month, although it has fallen 0.4 percentage points from the previous quarter to 21 per cent.

Tony Wilson, director of the Institute for Employment Studies, a research group, said there were “clear signs that weak labour supply is holding back growth”, with more than a million vacancies unfilled, yet 1.8mn people outside the labour force wanting to work, including nearly half a million more with long-term health conditions than before the pandemic.

Jane Gratton, head of people policy at the British Chambers of Commerce, said that while low unemployment was positive, “the labour market continues to be incredibly tight, bringing with it additional problems and costs for employers”.

Jeremy Hunt, chancellor, said the figures showed rising prices were “still eating into people’s pay checks”, making it a priority to curb inflation.

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