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Today, we have seen another evidence of the impact falling oil prices are making, which is urging Central banks and policy makers to shift their stance. The BOE minutes surprised the market revealing that the two hawks on the MPC beat a hasty retreat on the issue of rate hikes with the full committee returning to a 9-0 vote to keep rates steady for the time being. Both Martin Weale and Ian McCafferty reversed their votes in light of sharp drop in the inflation data and slowdown in UK economic activity.
One of the key concerns for the policy makers was that lower oil prices may become entrenched and keep inflation well below the BoE’s 2% target for longer than initially anticipated. More importantly there appears to be no upward pressure from wages in UK. Today’s labor data showed that while claimant count continued to improve dropping another -28K average earnings rose 1.7% as expected.
UK monetary authorities fear that lower prices at the pump may not necessarily translate into higher demand but rather into further deflationary pressure in which case any tightening would be highly counter productive.
In light of above decision, GBPUSD is expected to decline further in coming days.
One of the key concerns for the policy makers was that lower oil prices may become entrenched and keep inflation well below the BoE’s 2% target for longer than initially anticipated. More importantly there appears to be no upward pressure from wages in UK. Today’s labor data showed that while claimant count continued to improve dropping another -28K average earnings rose 1.7% as expected.
UK monetary authorities fear that lower prices at the pump may not necessarily translate into higher demand but rather into further deflationary pressure in which case any tightening would be highly counter productive.
In light of above decision, GBPUSD is expected to decline further in coming days.
