Europe stocks close higher; Sterling gains after UK wage growth falls to two-year low

LONDON — European stocks closed higher on Tuesday, as market participants monitored a fresh batch of economic data following last week's volatility.

The pan-European Stoxx 600 index provisionally ended 0.5% higher, with major bourses and most sectors in positive territory. Health care stocks rose 1% to lead gains, while mining stocks slipped 0.5%.

U.K. wage data released by the Office for National Statistics on Tuesday showed that pay excluding bonuses grew 5.4% year-on-year between April and June — the lowest rate in two years.

The unemployment rate fell to 4.2% from 4.4%, the ONS said, while economists polled by Reuters had expected an increase of 4.5%.

Jack Kennedy, senior economist at jobs site Indeed, said the figures showed the labor market remained "fairly tight" and that wage pressures were softening only gradually, potentially limiting the level of monetary easing the Bank of England is able to deliver this year.

U.K. inflation data, due on Wednesday, will be the first print since the Bank of England cut interest rates by 25 basis points. After two months at 2%, economists polled by Reuters expect the headline rate to tick higher, to 2.3%.

Money markets are currently pricing in a high probability of further rate cuts amounting to 50 basis points this year. The Bank of England's key rate currently sits at 5%.

The British pound was higher following the labor market data, trading up 0.4% against the U.S. dollar at $1.2823.

Investors around the world will also be analyzing the latest U.S. inflation data this week, in order to get a better picture of the state of health of the world's largest economy.

Data released Tuesday showed the U.S. producer price index, a measure of wholesale prices, rose less than expected in July.