The Minutes of the Bank of England Monetary Policy Committee meeting on January 7 and 8 revealed a two-way split with eight members voting for reduction by 50 basis points and Blanchflower voting against, preferring a reduction of 100 basis points. But there was also a discussion about maintaining the Bank Rate at 2.0%, at least until the next meeting. The markets had priced in a cut of 50 basis points and either leaving Bank Rate unchanged, or implementing a larger than expected cut, could damage confidence further in both financial markets and the real economy. It might be important to note that the BoE became less concerned about the depreciation of sterling. The MPC deliberated keeping rates on hold in January suggests that some members may feel more comfortable with a temporary pausing.
UK jobless claims rose 77 900 in December, while the consensus expected a rise of 81 000. The November figure was upwardly revised from 75 700 to 83 100. The claimant count rate came out higher than expected at 3.6% in December from 3.3% in November. The ILO unemployment rate rose to 6.1% in November. Average earnings including bonus came out lower than expected (3.1% Y/Y), while average earnings excluding bonus stayed unchanged at 3.6% Y/Y. Jobless claims are now at their highest level since 1991 which indicates that companies believe the slowdown is severe as they are reducing their workforce quickly.
Britain’s public finances deteriorated sharply in December, coming out at £44.2 billion, from £8.9B in November. The government’s acquisition of shares in Royal Bank of Scotland accounted for almost half of it. Public finances are forecasted to remain extremely weak in the coming months as the government’s rescue measures and rises in unemployment tend to lag the economic weakness. In January, the investment in the Lloyds banking group will move onto the government’s book.
