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Bank of England underwhelms

Published Friday, August 7th, 2015

“Super Thursday” turned out to be not so super after all as the Bank of England’s first-time triple release of its policy decision, minutes from the meeting and inflation report left markets feeling underwhelmed. Mark Carney and his fellow policymakers struck a surprisingly dovish tone in their latest update on UK monetary policy which saw just a single, lone member of the rate-setting committee voting to raise rates against market expectations of two or more. The cautionary outlook was compounded by subdued short-term inflation prospects which saw the Bank trim its 2015 inflation estimate by half to +0.3%.

There were bullish elements to the data releases including an upwards revision to 2.8% of its 2015 UK GDP growth forecast and many have taken what was the first split vote of the year as a sure sign that rate normalisation is now a small step closer. Nevertheless, these supportive factors couldn’t counter the mildly downbeat mood and prevent the subsequent sell-off in sterling as hopes of a rate rise by the year-end all but disappeared. 

The spotlight will now return to the US where the rate lift-off baton remains firmly with the Federal Reserve. Today’s non-farm payroll report will provide the clearest signal yet as to the likelihood of a rate hike at the next policy meeting in September with improvement in the labour market seen as the single most important prerequisite of a rate rise. Expectations are for another solid report showing a net addition of 223,000 jobs in July and have not been dented by this week’s softer-than-expected ADP private sector survey pointing to a slowdown in the pace of hiring.

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Posted by Stephen Brennock

Stephen Brennock joined PVM in 2013 after having worked as a project manager for a business development firm. He graduated with a degree in Business Management in 2007.