17 Dec 2015
GBP: Mixed employment report adds to BoE policy uncertainty - MUFG
FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, notes that in contrast to the Fed there is far less clarity over the outlook for BoE monetary policy.
Key Quotes
“BoE Governor Carney has just performed another flip flop rescinding his previous comment that rate hikes will come into closer focus at the turn of the year. For the market his dovish turn is well anticipated as the first BoE hike has already been pushed back to early in 2017.”
“Until there is another shift in policy thinking at the BoE back in favour of raising interest rates, the pound is likely to continue to underperform. We still remain of the view that the BoE should not wait for as long as a year to begin raising rates after the Fed as the economic fundamentals of the US and UK are relatively similar.”
“The release of the latest UK employment report yesterday provided further evidence that the UK labour market remains very healthy. The UK economy has added another robust 207k jobs resulting in the labour market continuing to tighten more quickly than expected. The unemployment rate is likely to soon dip below 5.0% and move closer to the low from the previous economic cycle of 4.7%.”
“With very little spare capacity left in the economy it is becoming increasingly difficult to justify maintaining emergency monetary policy settings. Still the BoE are likely to delay raising rates a little longer as earnings growth has eased in recent months although has still picked up over the last year. The risk of delaying raising rates for longer is that the BoE may then have to raise rates more quickly further down the road creating the potential for snapback pound strength.”
Key Quotes
“BoE Governor Carney has just performed another flip flop rescinding his previous comment that rate hikes will come into closer focus at the turn of the year. For the market his dovish turn is well anticipated as the first BoE hike has already been pushed back to early in 2017.”
“Until there is another shift in policy thinking at the BoE back in favour of raising interest rates, the pound is likely to continue to underperform. We still remain of the view that the BoE should not wait for as long as a year to begin raising rates after the Fed as the economic fundamentals of the US and UK are relatively similar.”
“The release of the latest UK employment report yesterday provided further evidence that the UK labour market remains very healthy. The UK economy has added another robust 207k jobs resulting in the labour market continuing to tighten more quickly than expected. The unemployment rate is likely to soon dip below 5.0% and move closer to the low from the previous economic cycle of 4.7%.”
“With very little spare capacity left in the economy it is becoming increasingly difficult to justify maintaining emergency monetary policy settings. Still the BoE are likely to delay raising rates a little longer as earnings growth has eased in recent months although has still picked up over the last year. The risk of delaying raising rates for longer is that the BoE may then have to raise rates more quickly further down the road creating the potential for snapback pound strength.”