Forex »

GBPUSD Falls On BoE Minutes

James Boston
Share on StockTwits
Published on
www.finances.com
GBPUSD Falls On BoE Minutes

There was no change in the vote split at the recent Bank of England (BoE) Monetary Policy Committee (MPC) meeting. Once again just two of the members, Marin Weale and Ian McCafferty, voted in favour of raising the base rate from it’s long term historic low of 0.5%, all seven of the others voted in favour of that status quo. The minutes of the MPC meeting that took place earlier this month reveal that the majority of the committee see recent global economic developments as “modestly to the downside, particularly in the euro area, Asia, and the emerging economies”. The key concern among the members was the deteriorating situation in the German economy, this they noted was particularly vulnerable to shifting trends in global demand and as the major economy in the Eurozone it held the potential to weigh heavily on overall growth in Europe.

The BoE’s overt concern around the softening of the European economic situation gives a clue that it is in no immediate rush to tighten up on monetary policy. This coupled with the controlled inflation situation in the UK economy implies that the timeline for interest rate rises has potentially shifted. Originally tabled for May it is starting to look likely that the first rate hike since mid 2007 could now be push further into next year.

On the surface the pace of growth in the British economy would appear to warrant monetary tightening sooner rather than later however there are still some areas that can benefit from loose policy for a while longer. Unemployment has been cited as falling at an acceptable pace, even outperforming on some occasions, but the headline rate masks some weaknesses. The lack of wage inflation, combined with lower than anticipated income tax take by the exchequer, point to substantial slack still existing in the employment market. This gives the BoE enough scope to continue with monetary stimulus for the time being.

Share on StockTwits