HiFX comments on this morning’s MPC minutes and unemployment figures
Andy Scott, associate director of FX advisory services at foreign currency specialists, HiFX, comments on this morning’s MPC minutes and unemployment figures.
Andy said: “Sterling fell by over half of a percentage point following an unexpected change in the voting by the nine members of the monetary policy committee. With the two dissenters who had been voting for a rate increase of 0.25% now deciding that it is no longer appropriate, at a time when we have a joint record low rate of inflation and near-terms risks that it will fall further. This simply aligns all of the MPC with what markets have been pricing in for a while that UK borrowing costs are unlikely to be increased this year. The overall tone of the minutes were quite upbeat about the economic outlook for the UK and the environment of very low inflation and near zero interest rates should continue to support GDP growth.
“At the same time as the minutes were released, we also had employment data for November which showed a larger than expected drop in the unemployment rate – which now stands at just 5.8%, with average earnings ticking up to 1.7% compared to a year previous.
“The strong levels of growth seen in 2014 continue to boost job creation and support the positive economic landscape under David Cameron’s government. Sterling is likely to brush off the fact that interest rates won’t rise this year and we expect it to continue to outperform the struggling euro. Against the dollar however, it has a bigger challenge given the pace of economic growth and rapidly decreasing unemployment seen in the U.S. that’s expected to result in the Federal Reserve raising rates in the first half of this year. Doubts exist though over whether they will tighten policy at a time when falling oil and energy prices are putting huge downwards pressure on inflation. Only time will tell.”
