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BoE Dovish Inflation Report and Lower Unemployment

The Bank of England’s Monetary Policy Committee (MPC) released their inflation report for May 2014. The dovish tone of the pre-prepared text, led to sterling trading new session lows in the FX market, as the optimism for an interest rate hike in the near term was dampened as Carney attempted to lower expectations. The BoE left their forecasts for both inflation and growth almost unchanged from the previous release, reinforcing the expectation for a rate hike will not be until 2015.

The UK economy is growing, and there is positive data, with low inflation, growth in manufacturing, services and employment. The concern of a property bubble was noted in the press conference; however Carney attempted to push the focus of property prices onto the PRA and FPC, and that the MPC notes a property bubble as a risk to the wider economy.

The FTSE 100, is trading near its 14-year high, as markets are buoyed by economic growth and investors looking for returns due to the lower interest rates.

Link to the full BoE May Inflation report

UK Unemployment

The UK ILO unemployment rate was released by the Office for National Statistics this morning, and dropped to 6.8%, 0.2% below the BoE’s original forward guidance threshold of 7%. This was accompanied by a drop in the claimant count and increased employment. Despite the positive data for the economy sterling sold-off in the FX markets due to the weak earnings data, reinforcing the view that there is slack in the Labour market.

ONS Labour Market Statistics, May 2014

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