BOE voted 9-0 to Stay Status Quo, Sterling Rallied as Jobless Claims Reduced Unexpectedly

The BOE minutes unveiled that MPC members voted unanimously on March 4 to keep the policy rate unchanged at 0.5% and to maintain the asset purchase program at 200B pound. While growth outlook remained mixed, policymakers raised concerns over the overshooting inflation.

According the minutes, policymakers decided to leave everything unchanged as there was 'little evidence to suggest a significant change on the month to the balance of risks to the outlook for activity in the medium-term'.

UK's CPI exceeded the central bank's 2% target and surged +3.5% y/y in January. The concern was specifically stated in the minutes: 'if the economic recovery gathered momentum and upside pressures on inflation from energy prices and the exchange rate continued, there was a risk that the current period of above-target inflation would be more prolonged, with a potential knock-on effect on inflation expectations'. In fact, some members forecast upside risks to inflation in the near-term. A fragile recovery path together with resilient inflation outlook have complicated BOE's monetary stance.

The pound rallies strongly against the dollar and the euro. However, this is not driven by the minutes. Rather, a surprisingly reduction in jobless claims in February boosted optimism. The Office for National Statistics reported that Claimant count contracted -32.3K (consensus: +8.2K) to 1.59M in February. While the count rate slid to 4.9% during the month from 5% in January, the 3-month averaged ILO employment rate was flat at 7.8% (consensus: 7.9%) in January. The readings are impressive and spur speculations that the unemployment rate has peaked.

The BOE described labor market activities as 'broadly stable'. While earnings growth had remained weak, there will be some increase in the growth rate of earnings in 1Q10. Economic recovery may help job creation modestly.\