In case you missed ’em, here’s a rundown of the top-tier economic reports released from the U.K. this week. Better take a look since these could drive longer-term forex price action for the British pound!
Earlier in the week, the U.K. printed weaker than expected inflation readings, reminding forex traders that the BOE might not be able to tighten monetary policy anytime soon. After all, hiking interest rates or reducing money supply tends to boost the local currency’s purchasing power, which then puts downward pressure on price levels.
Headline CPI fell from 1.3% to 1.0% in November while core CPI slipped from 1.5% to 1.2%, far below the central bank’s 2% inflation target. Falling oil prices were mostly to blame for the declines, although BOE Governor Carney mentioned that this should support U.K. and global growth.
The U.K. jobs report continued to impress, as the November figures indicated a 26.9K drop in claimants. To top it off, the October figure was revised to show a 25.1K decline in joblessness, better than the initially reported 20.4K figure. Take note that six out of the last seven jobs releases churned out stronger than expected results!
Meanwhile, the jobless rate held steady at 6.0% instead of improving to 5.9% as many had expected. The U.K. economy has been able to keep the jobless rate at this level since September this year, indicating that employment conditions are stabilizing.
Signs of wage growth were also seen, as average earnings saw an annualized 1.4% gain for October, stronger than the estimated 1.3% increase and the previous months’ 1.0% rise. This also indicates that wage growth is starting to outpace consumer inflation, which could be a sign that spending would soon pick up.
BOE Policy Bias
BOE policymakers seem unimpressed with the latest economic figures though, as the minutes of their latest meeting indicated that the rise in wages is only in line with their expectations. As with their previous policy decisions, the committee voted unanimously to keep asset purchases unchanged and 7-2 in favor of keeping interest rates on hold.
MPC members did acknowledge that economic performance in the U.K. “appeared a touch stronger than previously thought” and that the slide in oil prices could support business activity. For now though, majority believe that there are still plenty of risks associated with any policy adjustments.
In a nutshell, the latest reports suggest that the BOE might stand pat for a bit longer, as policymakers wait for more signs of a pickup in inflation and wages before adjusting monetary policy. Do you think this is enough to keep the pound supported?