A Bank of England meeting this week offers some hope of a boost for sterling, if the bank’s minutes again signal a rate increase next year or one or more of the bank’s inflation hawks vote at the meeting to raise rates.
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Ian McCafferty, one of four external members of the MPC, was the only one to vote for a rate rise.
S. federal funds futures market in recent past have cast doubts over the possibility of increase in key interest rates by the Federal Reserve, which is widely expected to announce a hike as soon as next week.
The Bank of England is expecting November inflation figures to move into the positive and future months should increase further as some of the large falls in energy and food prices at the turn of a year ago drop out of the annual comparison. He commented: “With inflation still slightly negative and uncertainties about global economic prospects continuing to be a feature of economic debate, the MPC was unlikely to change the decision taken last month”. Since falling below 1.06 at the start of the month, the euro has rallied by almost 5% against the dollar.
Governor Mark Carney and other Monetary Policy Committee members said the “material news” in the month since they had last met was that oil prices had “fallen markedly again”, which raised the likelihood of inflation staying subdued.
Francois Cabau, a Barclays analyst, said that the minutes “confirmed that a Bank rate hike is off the table in the short term, and as long as economic data do not pick up”.
However, “core” CPI – the more meaningful gauge of prices – was “subdued” and even the headline rate of CPI was expected to remain below 1% until the back half of 2016, which was well away from the Bank’s inflation target of 2%.
Although Yellen noted in a speech last week that improving conditions in the US economy have met the FOMC’s expectations since it last met in October, she emphasized that long-term inflation still remains considerably below the Fed’s targeted goal of 2%. Investors’ reactions are hard to predict because the “Fed has not changed its rate for nine years, and the question is how much of a buffer the European Central Bank is offering to neutralize higher US rates”. Brazil is experiencing its worst recession in decades and previous rate hikes have not prevented a rise in inflation, which in October reached a 12-year high of 9.93%.
The decision came ahead of the expected first lift in United States interest rates since 2009 by the Federal Reserve next week.
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The Bank of Korea has predicted GDP growth of 2.7 per cent for the whole of 2015.
