Sterling markets are now on a roller coaster. Last week we saw a strong CPI (what they should be used at the moment), very weak growth data, and now, according to the protocol January January meeting, another member, former in opposition, voted for higher interest rates.In addition, the discussion was very significant. While acknowledging the downside risks to growth, the committee is also concerned that inflation remains above target mark for a substantial period of time, "can cause the growth of future inflationary expectations." In addition, they reflect the fact that while the expectations of households went up, business and market inflation expectations "have remained more stable." Perhaps firms that currently have more pricing power than households facing behind the growth of wages to inflation and high unemployment, limit the ability of workers to insist on increasing salaries in order to fill this hole. The Committee took into account the likelihood of greater political interest, but expressed fears that it could be misinterpreted as a signal to an attempt to reduce inflation to the target level of "too fast".
If the GDP data is generally consistent with the expectations of the market, then the market could easily begin to take on the eve of the February meeting, after the current protocol. The fall in GDP in the form in which it is, though, and are likely to be partially (if not completely) reversed this quarter. The fall in GDP is likely to gain time for Monetary Policy Committee to decide when to hold the first tightening of policy.
In the context of the sterling, the dilemma facing the Bank of England is unlikely to support him. Today's report was the reason to cover some short positions, but overall, the currency failed to gain support from potential increases in interest rates, as expected. Sterling, of course, aware that higher interest rates will not be a panacea solving current problems in Britain with inflation.
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