UK: MPC unanimous against rate cut; GBP/USD falls

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: