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Beecroft: What next for sterling and the Bank of England
There was good news for British consumers on Tuesday as the UK inflation rate dropped below the Bank of England’s two percent target. Reacting to the figures, Saxo’s Nick Beecroft explains the BoE will be watching inflation “very carefully” from now on, as forward guidance as it was has been “consigned to the bin” - meaning the BoE’s inflation prognosis is to be one of the primary indicators to look at.
The Office for National Statistics (ONS) said the drop to 1.9 percent in January was the seventh monthly fall in a row. British Prime Minister David Cameron said on Twitter: "Today's fall in inflation is more evidence our long-term economic plan is working. We want to ensure a secure future for hard-working people."
Markets are now waiting for the UK employment data, released on Wednesday. The rapid drop in UK unemployment has forced the Bank of England to abandon its target of a 7 percent jobless rate as the threshold for considering an interest rate rise. The central bank’s forward guidance will now focus on a wider range of elements.
Speaking of the jobs data, Nick says: “We may see another tick down towards the 7 percent level – the old bank of England threshold. I think it’s going to be good news.”
Equally interesting for Nick, will be the minutes from the last Bank of England monetary policy. He believes a rate hike can come “earlier than people expect”.
Baring all the recent positive data in mind, Nick continues to be positive on sterling: “I continue to have faith in the UK recovery; that is going to become incredibly starkly in profile compared to the flat line eurozone recovery as the year goes on, so I’m positive for sterling over the euro.”
02:16 minutes
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