This morning’s MPC minutes release and UK employment figures
brought some positive news for sterling, even if this didn’t translate in to
any real demand for the currency today. The MPC minutes were not as dovish as
they could have been, bearing in mind September’s update from the UK services,
construction and manufacturing sectors were very disappointing. Meanwhile this
morning’s UK unemployment figures beat expectations considerably, providing
further optimism for a positive Q3 GDP figure on October 25.
The minutes revealed that there are clearly differing views
within the MPC. Whilst no members voted for more QE in October, there are very
likely to be members in favour of more QE in November. However, the MPC minutes
and various speeches from members like Martin Weale and others such as
Broadbent and Dale, reveal that there are plenty who doubt the need and indeed the
actual usefulness of more QE.
Based on these minutes, it seems unlikely that the MPC doves
will be able to form a majority in favour of QE in November. Martin Weale’s
reservations over whether more QE is in line with the Bank’s inflation target
could well convince some of the fence-sitters to hold fire on QE, as could the
early indications that the Funding for Lending Scheme is stimulating credit
conditions. Next week’s UK GDP figure could well have the final say for several
voters.
Today’s UK employment figures have positive implications for
the upcoming GDP figure. With the jobless rate dropping unexpectedly down to
7.9%, UK unemployment is at its lowest level since June 2011. The government
will take a huge amount of comfort in the ongoing uptrend we are seeing in the
UK labour market.
Richard Driver,
Currency Analyst
Caxton FX
