The March BoE Minutes (Wednesday) are likely to be fairly neutral for GBP, highlighting concern with an outlook of near-term disinflationary pressure but medium-term upside risks to activity and wages. Governor Carney noted in a speech last week that trade-weighted GBP appreciation is “reinforcing the disinflationary impulse from abroad”, adding to the current policy dilemma. Indeed, while GBPUSD depreciated more than 2% last week, to be more than 5% lower YTD, pronounced EUR weakness has seen GBP appreciate almost 4% this year on a trade-weighted basis. Barclays notes as follows:
- Our economists continue to expect a 9-0 vote in favour of no change with a split vote not likely to materialize again until H2 2015.
- We continue to forecast further GBPUSD depreciation and see some risk of EURGBP appreciation as we approach the highly uncertain UK 7 May general election and the first Fed rate hike at its June meeting. January UK labour market data (Wednesday) should continue to improve, in line with broader economic activity.
- We expect unemployment to drop to 5.6% in January (consensus: 5.6%; last: 5.7%), in line with a healthy drop in the claimant count last month. Consistent with tight labour market conditions, we forecast average weekly earnings growth to increase further to 2.4% 3m/y (consensus: 2.2%; last: 2.1% 3m/y in December) on strong bonus pay and further strengthening of core earnings (Barclays: +1.9% 3m/y; consensus: 1.8%; last: 1.7%).
- We expect February claimant counts to drop by 35k (consensus: -32.5k; last: -38.6k).
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