STERLING jumped yesterday as it was revealed that officials at the Bank of England were less concerned about deflation and external threats to the economy.
Despite more bullishness in the minutes of the last monetary policy meeting released yesterday, rate-setters voted unanimously in favour of holding interest rates at 0.5 per cent. For two members the decision between holding and raising was “finely balanced”.
The pound climbed one per cent against the dollar, reaching $1.50783.
One of the biggest changes to the economic outlook was the upturn in the Eurozone – the UK’s biggest trade partner. “The recovery in the euro area was the most significant development on the month,” the minutes said.
The committee also gave hints that members may be expecting inflation to recover more quickly than previously thought. “It was unlikely that activity growth could be maintained at its current pace for long, without generating greater inflation in wages and prices, in the absence of some material improvement in labour productivity.”
Economist Fabrice Montagne from Barclays said: “Given that current forecasts by the bank do not show a material pick up in productivity, such a statement highlights the views of the bank that medium-term risks on wages and inflation are tilted to the upside.”
Despite the fact inflation may be expected to recover sooner, the view remains that a drop in inflation to negative territory over the coming months is likely.