There are some surprises from the UK: after two members voted constantly for a rate hike, they now switched back to voting with the majority. This was not expected and dovish for the pound. However, the unemployment rate fell more than expected to 5.8% and average earnings rose by 1.7% (+1.8% ex bonuses), also better than predicted. Also the Claimant Count Change for December beat expectations by falling 29.7K, following a revision to 29.6K.
GBP/USD is trading lower: falls below 1.51.
Weale and McCafferty voted for a rate hike since mid 2014. But now, they dropped their call: plunging oil prices weigh on inflation expectations. The MPC now sees a “roughly even” chance that the inflation rate falls to negative ground at some point in the first half of 2015. They do not see deflation sticking though.
A rate rise would increase chances of prolonged low inflation and the MPC is “alert”.
Monetary policy could be adjusted when appropriate in order to reach the 2% inflation target, but they do mention that a potential fast increase in incomes could put medium term upside pressure on the CPI.
The job figures are quite upbeat, especially the ongoing advance in wages: from 1.4% to 1.7%. The job market is growing at a steady and solid pace. A 5.8% unemployment rate has positive implications for the current government.
The UK was expected to report a drop of 24.2K in jobless claims for December, The unemployment rate for November carried expectations for a drop to 5.9% and average earning were expected to rise 1.7%. The meeting minutes were predicted to reveal a 7:2 split against raising the rates.
More: GBPUSD has room to the downside – Elliott Wave Analysis
Here is how the fall looks on the chart:
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