The United Kingdom was in focus today as there were some key data releases from there. These included the Bank of England minutes and jobs data.
The BoE minutes of the latest Monetary Policy Committee’s meeting on December 4th offered little to change the view that interest rates will stay near record lows until at least the second half of 2015. Concerns over inflation remain. The MPC doves were still a majority as only 2 out of 9 MPC members voted to hike rates as opposed to the others who thought the weak outlook for inflation in the UK warranted keeping rates low for longer. The benchmark rate is at a record low of 0.5%.
Overall, the BoE remains in a wait-and-see mode since MPC members did not expect inflation to rise to the Bank’s 2% target anytime soon and in fact BoE Governor Mark Carney said earlier this week that the BoE expects inflation to fall below 1% in December. According to the BoE minutes, a majority of the Bank’s policymakers think wages need to grow faster in order for the 2% target to be reached sooner. On Tuesday data showed UK inflation fell to a 12-year low in November to 1.0%, down from October’s 1.3%.
Data today showed that average weekly earnings for employees in Great Britain grew more than inflation in October. Comparing the three months from August to October 2014 with a year earlier, pay for Britons increased by 1.4% including bonuses and rose by 1.6% excluding bonuses.
The official unemployment rate remained at 6.0% in the three months to October, despite a forecast for it to drop marginally to 5.9%. However, the claimant count change saw some improvement, falling more-than-expected in November to a seasonally adjusted -26,900 from -25,100 in October. Expectations were for a drop to -21,200.
Both the wage earnings data and the claimant count change numbers were positive for sterling but the currency did not rise much against the dollar and has been struggling to rise above 1.5734 so far today. The pair is almost flat since the open of the European session. Two factors are weighing sterling down –yesterday’s low inflation rate which has pushed out the expectations for an earlier rate hike and also there is a divergence between the BoE and the Fed’s monetary policies. The Fed is expected to hike rates before the BoE, resulting in a stronger dollar, meaning the pound will lag behind it.