Sterling slips in reaction to Bank of England dovish minutes

Sterling slipped against the dollar after markets reacted negatively to the latest set of minutes from the Bank of England released on Thursday.

By early trading on Friday, cable was down at $1.5135.

The BOE was not expected to move on rates. It kept the benchmark rate at the rock-bottom record low of 0.5 per cent as expected for the 81st month in a row. The vote split was also no surprise; Ian McCafferty voted to raise rates by 0.25 percentage points, while the other eight rate setters preferred to stay on hold.

But the meeting minutes were more on the dovish side and said:

“Despite lower unemployment, nominal pay growth appears to have flattened off recently. This could reflect short-term volatility in the data. But earnings per worker could be affected by changes in the mix of employment, including a fall in average hours, in which case the impact on unit labour costs would be limited. It could also be that lower headline readings of inflation have acted to limit recent nominal pay growth, despite the tightening labour market. The balance between pay and productivity growth remains a key aspect of the MPC’s policy assessment.”

Also mentioned:

“All members agree that, given the likely persistence of the headwinds weighing on the economy, when Bank Rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles.”

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