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Bank of England - Economic Data Preview
Wednesday, 17 December 2008 03:22:06 GMT  |  Ilya Spivak, Currency Analyst
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In the UK, minutes from the last meeting of the Bank of England are due for release. Mervyn King and company have sounded definitively dovish in recent weeks. Just yesterday, the Governor wrote in an open letter to the Chancellor of Exchequer that in 2009, he expects to be offering explanations on why inflation is below the 2% target rather than above it. Further deterioration in the labor market would bolster King’s assessment, with Jobless Claims expected to rise by the most in 16 years and the Unemployment Rate ticking up to 6%, the highest since 1999. Job loses will weigh on disposable incomes and trim consumption, sinking economic growth and slowing prices. Indeed, annualized inflation has decelerated 21% in just two months to print at 4.1% in November, the lowest since June. Still, traders have pared back expectations of future easing: overnight index swaps now price in just 50 basis points in rate cuts over the next 12 months having called for 175bps less than 2 weeks ago. The BOE has trimmed a hefty 3% off borrowing costs in a mere 2 months, the sterling has declined, and the government offered fiscal stimulus; it seems the markets now see scope for the central bank to wait and see how things play out.

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