Bank of England won't trouble the markets

The Bank of England Monetary Policy Committee announcement will almost certainly have zero FX and market implications with rates being held at 0.5 percent a foregone conclusion.

While inflation has hit low enough levels to trigger a letter from BoE governor Mark Carney to Chancellor of the Exchequer George Osborne, real wage upside remains benign, something that remains a source of concern for the BoE.



The latest UK Inflation print was the lowest since records began in 1996. The Consumer Price Index increased by 0.5 percent in the year to December 2014, down from 1.0 percent in the year to November. The CPI was previously 0.5 percent in May 2000.


PMIs were positive, with Markit reporting that manufacturing output expanded for the twenty-third consecutive month in January, underpinned by a further increase in incoming new orders. The domestic market remained the prime driver of improved new order inflows. Solid output growth was registered at both intermediate and investment goods producers. However, the rate of growth in the consumer goods output ground to a near standstill pace.

Despite European economic concerns, there was also a modest increase in new business from overseas, representing the first meaningful improvement in new export order volumes registered for five months. Markit surveys indicated increased demand from France, Germany, Japan, the Middle East, Poland and the USA.


Despite the lower inflationary environment, consumer spending remains robust with December retail sales indicating 4.3 percent growth in December 2014 compared with December 2013 - the twenty-first consecutive month of year-on-year growth. Comparing the 12 months of 2014 with the 12 months of 2013 the quantity bought increased by 3.8 percent compared with 2013.

According to the most recent ONS data, the underlying pattern in the data as suggested by the three-month on three-month movement in the quantity bought continued to show growth for the 22nd consecutive month increasing by 2.3 percent and was the strongest growth since April 2002 when it was 2.5 percent. This was the longest period of sustained growth since November 2007 when there were 25 periods of consecutive growth.