HiFX comments on the UK data
Andy Scott, associate director of FX advisory services at foreign currency specialists, HiFX, comments on this morning’s UK data.
“This morning’s Bank of England minutes and unemployment data appear to be in line with what we heard at last week’s inflation report. Whilst there are some differences of views among the MPC, the most likely move in interest rates will be an increase rather than a cut over the next few years. They see wage growth picking up which will help push inflation back higher and today’s figures support that view, with total pay including bonuses rising by a faster-than-expected 2.1%. Unemployment also unexpectedly fell to 5.7% thanks to solid hiring in December.
“There’s still a lot of uncertainty over the forecast horizon but the message from the Bank of England seems to be that they could raise interest rates earlier than markets expect i.e., this year. We still see that as a relatively slim chance given all of the other downside factors that look set to weigh on consumer price inflation and with the U.S. and Chinese economies slowing, it seems prudent to keep monetary policy expansive.
“Sterling reacted positively to the both the minutes and the employment data as it reintroduces the possibility of a rate hike this year. One thing we haven’t heard the MPC mention yet however is the strength of sterling over the past year, which reached a multi-year high on a trade weighted basis – even though it’s weakened against the U.S. dollar. A strong currency when you’re faced with disinflation can add to the problem, and we see this as something that’s likely to register on the BoE’s radar in the months ahead.”
