LONDON, Nov. 24, 2015 /PRNewswire/ -- Despite the lowest rate of unemployment since 2008 (5.3%), inflationary pressures and the slowing rate of average earnings growth, traders should now consider the likelihood that the Bank of England (BOE) will raise interest rates in the first quarter of 2017.
"The GBP is currently a weak bullish currency in our opinion. The BOE is still actively looking to begin policy normalisation, however low inflation is making that move increasingly more difficult. On November 5 the BOE announced no changes to either bank rate or QE at its policy meeting, as was expected," explains Jarratt Davis, head of FX at Smile Global Management.
"The voting pattern also remained unchanged at 1-8, with Ian McCafferty once again calling for an immediate 25bp hike. The BOE was also more dovish than expected, saying that the outlook for global growth is weaker than in August, trimming its growth outlook for this year and 2016."
"CPI inflation is now expected to remain below 1% until the second half of 2016. The market implied bank rate shows rate liftoff in Q1 2017 for the first rate hike, as opposed to the previous Q2 2016."
The August/September jobs report was mixed with conflicting signals on unemployment and slightly softer than expected news on underlying wages growth.
"According to the claimant count measure, unemployment surprisingly rose in September. A 4.6K increase followed a 1.2K gain in August and established the third, even though only small, rise in the last four months. The jobless rate on this definition was again unchanged at 2.3%, in line with expectations, and also matching the level at which it has been pegged since March," adds Jarratt Davis.
"With that said, the ILO data were much stronger, showing unemployment in the three months to August falling 79K, the first decline in three months and large enough to see the jobless rate down a tick to 5.4%."
For further market commentary from Jarratt Davis, please email [email protected].