Sterling slides after the release of dovish BoE minutes
19 March 2008
Sterling sank against both the Euro and US Dollar this morning after UK interest rate futures rose on the release of a dovish set of BoE minutes. They revealed that two of the nine-member Monetary Policy Committee had voted for a 0.25% rate cut earlier this month while the remaining seven members elected to keep interest rates on hold at 5.25%.
Markets had anticipated a vote count of 8-1 in favour of keeping rates on hold; however it was revealed BoE Deputy Governor John Gieve had joined arch-dove David Blanchflower in voting for a pre-emptive cut. The minutes confirmed that the majority of policymakers were still very much concerned with current price pressures and that following February's rate cut, another reduction could give the wrong signal to the financial markets.
At the same time, a separate report indicated that UK average earnings grew less than expected in the three months to January, while the number of people claming unemployment benefit fell for a 17th consecutive month. Average earnings growth remains relatively subdued despite the recent rise in headline inflation which will come as a welcome relief to the BoE providing greater room for manoeuvre in terms of monetary policy.