No surprise that the Bank of England raised the bank rate by 25 basis points to 0.50% earlier. As widely anticipated, the vote came in 7-2 in favour. But what the market wanted to know was pace and direction – and it got a stony response.
Rate climbs in future will be at a “gradual pace”. That was enough, along with some other discomforting Brexit noises from Threadneedle Street, to shove sterling firmly down. At 4pm the pound had slumped -1.46% at 1.3078 while down -1.7% against the euro at 1.1203.
The MPC had the task of weighing risks to inflation, from a tight – and tightening - labour market, plus the frail pound and rising commodity prices said the British Chambers of Commerce. “Against this, they needed to consider the future risks to under-shooting the inflation target from weak growth, fragile business confidence, and the effects of uncertainty.”
That uncertainty is Brexit and the utter lack of clarity over how it will develop. Meanwhile some clarity is expected on who will take over Janet Yellen’s role as head of the US Federal Reserve – assuming Yellen does walk. President Obama appointee Jerome Powell remains hot favourite though President Trump could still surprise.
- UK FTSE 100 7,555 +0.90%
- Dow 23,429.82 -0.03%
- S&P 500 2,572.47 -0.26%
- Nasdaq 6,689.06 -0.41%
- Nikkei 225 22,539.12 +0.53%
- DAX 13,431.42 -0.25%
- CAC 40 5,500.24 -0.24%
- Gold 1,280.10 +0.22%
- Oil WTI 54.25 -0.11%
UK pay set to pick up?
One off-shoot of today’s Bank of England rate rise is the BoE’s view on wages. It points to a 40-year unemployment low; as employers increasingly struggle to fill vacancies, higher wages have to be a draw. Carney remains positive 2018 will see wages rise.
He anticipates weekly wages to grow +3.25% though that's a full percentage point down, pre-financial crisis. Also, the UK has a big productivity problem. Recent OECD data claimed the average UK worker was now a full -8.5% less productive than their German neighbour and a massive -26% less efficient than a US worker.