Today, BOE minutes for April’s monetary decision showed a split among policymakers regarding the extension or the stop of their asset-purchase program. The BoE decided this month to leave both interest rate and APF quantity unchanged to assess the impact of FLS program which is aimed to beef up credit to companies and households. Minutes of April’s monetary decision released today showed a split among policymakers regarding stimulus as Mervyn King, Paul Fisher and David Miles resumed their call for adding an extra 25 billion pounds to QE while the majority preferred a hold. The majority focused on inflation before deciding to keeping stimulus on hold for another month as the rate lingered at 2.8% in the year ended March and therefore further extension in non-standard measures would put more inflationary pressure. ‘Medium-term inflation expectations had drifted upwards in recent months, and a further easing might exacerbate this movement and prompt renewed weakness in sterling, with implications for wages and prices. In addition, the extent to which supply capacity would respond to greater demand would depend on how quickly capital and labour could be redeployed from declining to growing businesses. This issue was better addressed by policies to improve the working of credit markets,’ the minutes said. On the flip side, the minority took into consideration the current weakness in wage growth, slackening growth prospects and continued risks from the euro area, noting that ‘medium-term inflation expectations remained broadly consistent with meeting the target; and the Committee should look through temporary, even if protracted, periods of above-target inflation.” Further asset purchases, by lowering longer-term interest rates and supporting a range of asset prices, could facilitate a smoother path towards the economy’s new equilibrium, help prevent a more persistent reduction in spending, and thereby avoid potentially lasting damage to productive capacity,’ the minutes said.
Meanwhile, the Office for National Statistics said Jobless claims for the month of March showed a drop of 7.0 thousands to 1.53 million, compared to estimates of no change, while the previous reading of -1.5 thousands was revised to -5.3 thousands. Claimant count rate steadied at 4.6%. On the other hand, ILO unemployment rate for the three months ended February rose to 7.9%, the fastest pace in more than a year, recording a rise of 70,000 to 2.56 million, from both prior and expected readings of 7.8%. Employment edged up 2,000 to 29.7 million, marking the first drop since October 2011. The British economy, meanwhile, is in the throes of experiencing a triple-dip recession after GDP for the last three months of 2012 showed a drop of 0.3%, from an expansion of 0.9% in the third quarter. For sure, the key factor putting pressure on growth is the government’s pledge to continue with austerity measures. Osborne said in March that spending cuts by the government will continue for three years after the 2015 election. Yesterday, the IMF cut its projections for the country’s economic growth in 2013 and 2014 to 0.7% and 1.5% respectively, from its January forecasts of 1.0% and 1.9% while it noted the recovery was “progressing slowly”. The IMF also said that UK government should consider adjusting the pace of its austerity measures amid weak economic recovery. IMF recommended that Chancellor George Osborne should consider slowing the implementation of his austerity plans in the light of “lackluster” private demand. The report also reflected the weakness in consumer spending average weekly earnings surged just 0.8% in the quarter through February from a year earlier after the prior 1.2% increase. As of 09:30 GMT, the cable slipped versus the greenback to trade around 1.5260 after opening today’s trades around 1.5359.
EasyForexNews Research Team