Interest Rate Decision Bank of England (BOE) monetary policy committee members vote on where to set the rate. Traders watch interest rate changes closely as short term interest rates are the primary factor in currency valuation.0.50% we are waiting A higher than expected , which will pull GBP/USD to 1.718 today on the market
The U.K.'s trade in goods deficit widened in May due to unusually high levels of import activity of aircraft, and serving as a reminder more work is need to rebalance the economy away from consumer spending.
The Office for National Statistics said Thursday that the U.K.'s global goods deficit widened to GBP9.2 billion in May from April's GBP8.8 billion deficit.
The increase was steeper than expected as economists had forecast a goods deficit of GBP8.9 billion.
The rise also highlights the fact that the U.K.'s manufacturing and export sectors still require further support and development in order to rebalance the economy and help to ensure long-term growth which is currently heavily reliant on consumption.
That remains a goal for both the Government and the Bank of England, with BOE Governor Mark Carney in particular often raising the topic in speeches and presentations on the U.K.'s long-term health.
The ONS said the bigger-than-expected increase in the goods deficit was due mainly to aircraft imports, which is a highly erratic item. Figures show GBP1.2 billion worth of aircraft was imported into the country in May, up from GBP800 million in April.
Other figures published by the ONS showed that total trade in goods and services widened to a deficit of GBP2.4 billion in May from GBP2.1 in April. Trade in goods with non-European Union countries, meanwhile, also widened to GBP4.0 billion from GBP3.9 billion a month earlier.
The Bank of England left the U.K.'s benchmark interest rate unchanged Thursday amid criticism that officials are sending confusing signals on when borrowing costs will eventually start to rise.
The central bank said its nine-member Monetary Policy Committee agreed to leave the BOE's main interest rate at a low of 0.5% and the size of its bond portfolio at 375 billion pounds ($637 billion) after officials' two-day meeting.
Rapid economic growth in the U.K. has fueled speculation that Britain's central bank will be the first among its peers to call time on crisis-era policies and begin lifting borrowing costs. The Federal Reserve isn't expected to raise short-term rates in the U.S. until mid-2015. The European Central Bank, faced with sluggish growth and weak inflation, cut rates in June in the 18-nation euro zone.
Investors expect the BOE to move in early 2015, according to contracts that allow traders to bet on future changes in short-term interest rates. Some analysts think the BOE could raise rates even sooner, perhaps in November, if the economy continues to perform well.
BOE Gov. Mark Carney was likened to an "unreliable boyfriend" by British lawmaker Pat McFadden in testimony to parliament June 24, for apparently sending mixed messages to households and businesses on interest rates. Officials have twice overhauled their "forward guidance" on rates after a quicker-than-expected fall in unemployment.
Mr. Carney defended the central bank's communications, saying they helped fuel Britain's recent economic revival. Officials have signaled that benchmark borrowing costs are unlikely to rise above 2.5% to 3% for several years, which they say should help borrowers plan for the future.
The International Monetary Fund expects the U.K. to be the fastest-growing economy in the Group of Seven leading industrialized nations this year. The BOE will publish a new set of economic forecasts Aug. 13.
July's policy meeting was the first for MPC member Ben Broadbent as deputy governor for monetary policy, a role he took over on Charles Bean's retirement at the end of June. It was also the first meeting for Kristin Forbes, a U.S. academic who took over Mr. Broadbent's former slot as one of four MPC members drawn from outside the central bank's ranks.
Andrew Haldane, formerly the BOE's financial stability director, joined the council as chief economist in June. Another slot on the panel will be filled next month when Nemat Shafik, a former IMF official, joins as deputy governor for markets and banking, a new role created in a shake-up of the BOE spearheaded by Mr. Carney.
GBP/USD falls on upbeat U.S. jobless claims report
The dollar firmed against the pound on Thursday after data revealed fewer sought first-time jobless benefits in the U.S. last week than markets were expecting.
In U.S. trading on Thursday, GBP/USD was trading down 0.22% at 1.7121, up from a session low of 1.7105 and off a high of 1.7168.
Cable was likely to find support at 1.7086, Wednesday's low, and resistance at 1.7180, last Friday's high.
Elsewhere, sterling was down against the euro, with EUR/GBP up 0.08% at 0.7950, and down against the yen, with GBP/JPY down 0.34% at 173.87.
The U.S. Department of Labor reported earlier that the number of individuals filing for initial jobless benefits in the week ending July 5 declined by 11,000 to 304,000. Analysts had expected jobless claims to hold steady at 315,000 last week.
The numbers fueled demand for the greenback on Thursday, a day after the Federal Reserve released the minutes of its June policy meeting that forecast an end to stimulus program coming in October.
Meanwhile across the Atlantic, the Bank of England left rates on hold at 0.5% and kept the size of its asset purchase program unchanged at £375 billion.
The pound weakened against the dollar after official data showed that the U.K. trade deficit widened unexpectedly in May.
The Office for National Statistics reported that the U.K. trade deficit widened to £9.2 billion in May from a deficit of £8.81 billion in April. Economists had expected a deficit of £8.75 billion.
Elsewhere, sterling was up against the euro, with EUR/GBP down 0.09% at 0.7944, and down against the yen, with GBP/JPY down 0.55% at 173.43.
U.K. Construction Unexpectedly Falls as New Public Work Slides
U.K. construction unexpectedly fell in May as demand for new work and repair and maintenance weakened, suggesting the economy may have lost some momentum in the second quarter.
Output declined 1.1 percent from April, when it rose 1.2 percent, the Office for National Statistics said today in London. The median estimate of 10 economists in a Bloomberg survey was for an increase of 0.9 percent. From a year earlier, construction grew 3.5 percent, the weakest since November 2013.
The data follows a report earlier this week which showed industrial production slumped 0.7 percent in May. While the two indicators suggest a slowing in activity, other data have remained strong. Unemployment slid to the lowest level in more than five years in April and the National Institute of Economic and Social Research estimates gross domestic product grew 0.9 percent in the second quarter, the fastest since 2010.
New work and repair and maintenance both slid 1.1 percent in May from April. Within the new work category, public work excluding infrastructure, which includes schools and hospitals, slumped 4.2 percent and private commercial work fell 3.6 percent. In repair and maintenance, housing slipped 2.3 percent.
In the latest three months, compared with the period ending in February, construction fell 0.8 percent, the weakest since October 2012.
The construction sector accounts for 6.3 percent of the economy. The ONS will release preliminary estimates for second quarter gross domestic product on July 25.
Other reports suggest the construction sector is continuing to expand. Markit Economics said earlier this month that its index of construction showed an acceleration in growth in June. The Purchasing Managers’ Index increased to 62.6 from 60 in May.
BOE officials kept their benchmark rate at a record-low 0.5 percent yesterday.
Bank of England says may be case for extra leverage ratio for banks
The Bank of England said on Friday that big British banks and lenders might need to set aside more capital than planned under global rules being drawn up to prevent a repeat of the financial crisis.
Launching a public consultation on a new so-called leverage ratio, the BoE said many financial institutions may have to comply with a requirement to set aside funds on top of a proposed minimum of 3 percent of their capital.
"There may be a case to introduce a supplementary leverage ratio component to a subset of firms (e.g. ring-fenced banks and/or systemically important institutions) whose failure would be most destabilizing for the financial system," the BoE said in a consultation paper.
Such a supplement would effectively cover the bulk of Britain's banks.
British lawmakers want a leverage ratio of 4 percent or above, higher than the proposed global rule for 3 percent, saying tougher measures are needed to ensure taxpayers are not asked to bail out banks as they were in the financial crisis.
British banks have been required to meet the 3 percent target by Jan. 1, 2014, forcing some to raise more capital.
BoE Governor Mark Carney has previously said that 3 percent might not be high enough.
The U.S. Federal Reserve has insisted on a leverage ratio of 5 percent and above for U.S. banks.
The BoE consultation paper did not propose any specific figures for what the leverage ratio, including any supplements, should be.
Global regulators are not due to agree on the level of a leverage ratio for the industry worldwide until 2015 or later, given the disagreements between countries.
The discussions have become increasingly charged as many regulators no longer fully trust the way banks calculate their main core capital buffers. They are based only risk-weighted assets, the value of which is open to debate.
The leverage ratio is based on total assets held by a bank and is therefore seen as less open to interpretation.
The BoE said in its consultation paper that any supplementary leverage ratio would have to be made up of top-quality capital.
The GBP/USD pair fell during the bulk of the week, but did get a little bit of a bounce towards the end of the 1.71 level. That being the case, it appears that the market is still ready to continue going higher, and we believe that the 1.70 level will continue to be a bit of a “floor” in this market. Ultimately, we suspect of this pair goes to the 1.75 handle, and see nothing on this chart the changes our opinion about that. Pullbacks should continue to offer buying opportunities.
The high-flying pound took a breather last week, as GBP/USD posted modest losses. The pair closed at the round number of 1.71. This week’s highlights are CPI and Claimant Count Change. Here is an outlook for the main events moving the pound, and an updated technical analysis for GBP/USD.
British Manufacturing Production surprised with a sharp drop, while NIESR GDP Estimate posted another strong gain. As expected the BOE held interest rates at 0.50%. In the US, the FOMC minutes did not shed any light on possible interest rate hikes, and Unemployment Claims looked sharp.
BRC Retail Sales Monitor: Monday, 23:01. This indicator measure the change in retail sales in BRC stores and precedes the official retail sales release. The indicator posted a gain of 0.5% last month, compared to a jump of 4.2% a month earlier.
CPI: Tuesday, 8:30. CPI is the primary gauge of consumer inflation, and an unexpected reading can quickly affect the movement of GBP/USD. The index slipped to 1.5%, its lowest level in almost five years. Little change is expected in the upcoming release.
PPI Input: Tuesday, 8:30. This index measures inflation in the manufacturing sector. Since August, the indicator has posted just one gain, and the May reading came in at -0.9%, well below the estimate of +0.1%.
RPI: Tuesday, 8:30. This index includes housing costs, which are excluded from CPI. The indicator has been edging lower, and posted a gain of 2.4% last month, its lowest reading in 2014. The estimate stood at 2.5%. No change is expected from last month’s figure.
BOE Governor Mark Carney Speaks: Tuesday, 9:00. Carney will testify about the Financial Stability Report at the House of Commons Treasury Committee in London. Any clues as to the timing of a rate hike could have a significant impact on the movement of GBP/USD.
Claimant Count Change: Wednesday, 8:30. This is one of the most important economic indicators and should be treated by traders as a market-mover. Unemployment claims continue to fall at an impressive clip, and the May reading came in at -27.4 thousand. This beat the estimate of -25.0 thousand. The markets are expecting another strong reading, with the estimate standing at -27.1 thousand. Unemployment Rate is expected to dip from 6.6% to 6.5%, which would be the lowest level since February 2009.
Average Earnings Index: Wednesday, 8:30. Average Earnings Index slipped to 0.7% last month, its weakest gain in 2014. This was well below the estimate of 1.2%. The markets are expecting the downward trend to continue, with the estimate standing at 0.5%.
Business Interest rates Mark Carney faces an almost impossible decision on
House prices are running away with themselves, headlines warned until recently. Now property values, even in the most fashionable parts of London, are cooling. Employment is booming, but mainly among the self-employed. Inflation? Well, no one knows where that is heading.
To say there is confusion at the heart of economic policymaking is an understatement. What seemed certain only a few months ago is no longer so. Earlier this year, interest rate rises were unlikely until the summer of 2016. A month ago, the City was speculating they could start as early as November, with another before the general election next May. Last week, the odds on a November rise began to lengthen and bets on a delay until the summer of 2015 became increasingly popular.
In a febrile, unsettled climate, beset by uncertainties – from last week's collapse of Portugal's third largest bank (a warning of worse to come in the eurozone?) to the Scottish referendum – the nation is hanging on every word from the Bank of England over the prospect of higher interest rates. Mark Carney doesn't need to be told he is in the spotlight or that he is in a difficult position.
At the moment households and businesses are responding to the confusion with a conservative approach, probably after reading the headlines that followed Carney's springtime revisionist speeches in which he concluded that Britain's economy was healthier than previously thought. One of the more comprehensive surveys shows 60% of households expect rates to rise this year.
Bank officials look at this response with satisfaction. They think it is not just Carney's speeches but the weight of reports and interviews by other monetary policy committee members that has nudged people to prepare for a hike. They don't believe people are reacting to a flip-flopping, conflict-ridden committee that cannot make up its mind.
Yet the slowing of the economy as the summer approached has shown it may not be as strong or resilient as Carney suggested, especially in his Mansion House speech. So what are the mixed signals that have befuddled the brightest brains? Discussing them one by one might help.
U.K. Business Confidence Highest Among Developed Nations
U.K 's business optimism was highest among the developed nations in June amid weakening global sentiment, results of Markit's Global Business Outlook survey showed Monday.
Business confidence in the U.K., in terms of expected future activity, employment and investment, came in highest among the the G4 economies, though the measure eased from February's record high.
The Markit Global Business Outlook Survey was carried out in June and is based on responses from a panel of 11,000 manufacturing and services companies. The survey is conducted three times a year.
Japan's business confidence surged in June after declining in the previous survey as fears of the effect of the April sales tax hike eased. This marked the highest levels of confidence since February 2013.
Business activity expectations remained unchanged in the U.S., though the employment index and the investment index declined to new lows in June.
That suggests that U.S. companies are more focused on cost control than any time since the global financial crisis. This was partly attributed to uncertainties regarding the cost impact of the new healthcare reforms.
Meanwhile, Eurozone's business confidence eased in June after the 3-year peak, but remained higher than average. Investment outlook was unchanged, but were weaker than those in other economies. Divergent patterns were seen with confidence waning in the core euro area, while rising in the periphery.
Business sentiments in France and Germany fell sharply in June, while Spain's business confidence held steady at a post-crisis high. Optimism rose to a 3-year high in Italy.
U.K. June inflation rises to 1.9%, core CPI increases to 2%
Consumer price inflation in the U.K. accelerated more than expected in June, hitting the highest level since January, official data showed on Tuesday.
In a report, the U.K. Office for National Statistics said the rate of consumer price inflation rose at a seasonally adjusted 1.9% last month, accelerating from 1.5% in May and compared to expectations for a reading of 1.6%.
Month-over-month, consumer price inflation increased 0.2% in June, compared to estimates for a 0.1% decline.
Core CPI, which excludes food, energy, alcohol, and tobacco costs rose at a seasonally adjusted rate of 2% last month, up from 1.6% in May. Analysts had expected core prices to rise 1.7% in June.
The retail price index increased 2.6% in June, above expectations for 2.5% and up from 2.4% in May.
The data also showed that the house prices index climbed 10.5% in May, compared to forecasts for a 10.2% gain and accelerating from a 9.9% increase in April.
Pound Resumes World-Beating Rally on Rising Inflation
The pound resumed its world-beating rally after consumer prices increased at a faster pace than economists forecast, boosting the case for the Bank of England to increase interest rates.
Sterling rose for the first time in four days against the dollar as the Office for National Statistics said annualized U.K. inflation was at 1.9 percent in June from 1.5 percent the prior month. That compares with 1.6 percent forecast by analysts in a Bloomberg survey. The British currency strengthened at least 0.3 percent versus all of its 16 major peers. U.K. government bonds fell for a second day and a bond-market gauge of inflation expectations climbed from the least in four months.
“We are still seeing inflation surprise to the upside,” said Adam Cole, the head of Group-of-10 currency strategy at Royal Bank of Canada in London. “It should work towards lifting U.K. rate expectations, which is clearly why sterling is taking it positively. We would see value in expressing that view in the currency at these kind of levels.”
The pound rose 0.3 percent to $1.7140 at 10:39 a.m. London time, climbing from $1.7060, the weakest intraday level since June 30. Sterling strengthened 0.5 percent to 79.34 pence per euro, snapping a two-day decline.
Cole forecasts the U.K. currency will advance to 77 pence against the euro before the end of September. The median prediction of analysts compiled by Bloomberg is for sterling to strengthen to 79 pence.
GBP/USD hits fresh 5-1/2 year highs on Yellen, U.K. data
The pound rose to fresh five-and-a-half year highs against the U.S. dollar on Tuesday, following dovish comments by Federal Reserve Chairwoman Janet Yellen and as earlir U.K. data continued to support.
GBP/USD hit 1.7192 during U.S. morning trade, the pair's highest since October 2008; the pair subsequently consolidated at 1.7156, climbing 0.42%.
Cable was likely to find support at 1.7060, the session low and resistance at 1.7874.
Ms. Yellen said the U.S. economy is continuing to improve but added that the recovery is not yet complete. She said that considerable slack still remains in the labor market and wage growth remains weak.
The remarks came during testimony to the Senate Banking Committee in Washington.
The Fed chair reiterated that rates are likely to remain on hold for a considerable period after the bank’s quantitative easing program ends.
Interest rates could rise sooner more quickly if the labor market was to improve more quickly than expected she said, but added that if the economic recovery is disappointing interest rates would remain accommodative.
Yellen's comments came after the Commerce Department reported that U.S. retail sales rose just 0.2% in June, below forecasts for a 0.6% increase. Retail sales for May were revised up to 0.5% from a previously reported 0.3%.
A separate report showed that manufacturing activity in New York state rose to a four year high this month. The Empire state manufacturing index rose to 25.6 from 19.3 in June. Analysts had expected the index to decline to 17.0.
The pound strengthened earlier, after the Office for National Statistics reported that consumer prices rose 1.9% on a year-over-year basis in June, accelerating from 1.5% in May and well above expectations of 1.6%.
Consumer prices ticked up 0.2% last month, the ONS said, compared to estimates of a 0.1% decline.
A separate report showed that the house price index climbed 10.5% in the year to May from 9.9% in the year to April.
The upbeat data added to signs that the economic recovery in the U.K. is deepening, bolstering expectations that the Bank of England will raise interest rates before the end of the year.
Sterling was also higher against the euro, with EUR/GBP declining 0.75% to 0.7912.