Hawkish MPC minutes fail to shift rate expectations
23 January 2008
The release of the Bank of England minutes from January’s rate announcement meeting this morning sounded a more hawkish tone than expected. The MPC ruled 8-1 in favour of keeping interest rates on hold at 5.5% with Blanchflower the sole dissenter. The committee highlighted increased downside risks to the economy since its last forecasts in November however, the members remain wary of inflationary pressures.
In a separate report issued by the Office of National Statistics, forth quarter UK GDP had grown stronger than forecasts; reporting its strongest full year performance since 2004. The UK economy grew at 0.6% in the final quarter of 2007; easing from 0.7% in Q3 however above market expectations of 0.5% q/q. Nevertheless, it was the lowest quarterly growth rate since Q3 2006 and took the annual rate down to 2.9% in Q4 from 3.3 percent in the three months to September. The deceleration was a result of muted growth in the business services and finance sector which grew by 0.4% compared to 1.3% in Q3.
Sterling initially strengthened on the back of both sets of data against the US Dollar and Euro before retracing gains, while UK’s leading share index extended losses after a positive market opening.