Stocks in London tumbled on Tuesday as the surge in record wages fuelled concerns about inflation and further interest rate hikes, while Legal & General declined following lower first-half profits.

Excluding bonuses, UK wages were a record 7.8% higher in the three months to June compared to a year earlier, deepening the Bank of England’s (BoE) worries about long-term inflation that could potentially keep interest rates elevated.

“The pace of wage growth will support the more hawkish side of the Bank of England. So, marginally, this makes interest rate hikes more likely,” said Richard Flax, Chief Investment Officer at Money Farm.

The FTSE 100 index, which is heavily export-focused, dropped 1.2% in the first hour of trading, while mid-cap stocks also fell by 0.7%. Both indices hit one-month lows.

The pound immediately rose by as much as 0.28% to $1.2720 after the data release, while yields on both short-term and long-term gilts also shot up.

Interest-sensitive real estate stocks also declined by 1.9%.

Life insurance shares fell by over 2%, leading sector losses, impacted by a more than 3% drop in shares of British insurer Legal & General.

Most sector indices turned red after the wage growth figures, with mid-cap stocks also dropping by 0.7%.

Retail stocks were the lone standout, rising by 0.7%, supported by shares of Marks & Spencer, which soared over 8% after the UK retailer raised its profit outlook.