by Jack Smith
The UK pound has dropped -0.91% versus the euro to 1.2993 today, its first time below 1.30 in six days, or since January 15th.
Sterling has fallen, chiefly because two members of the Bank of England's Monetary Policy Committee no longer favour hiking UK interest rates, increasing the likelihood that borrowing costs will remain at record lows of 0.5% for longer.
The pound has also lost out versus the euro, because UK wages rose -0.1% less than forecast in November, by just +1.8% year-on-year. Moreover, unemployment dropped the least in 15 months in the 3 months to November, by just -58,600.
Sterling weakens, as BoE's Weale and McCafferty vote against hike
The pound has fallen today, primarily because two members of the Bank of England's Monetary Policy Committee, Martin Weale and Ian McCafferty, have voted against hiking UK interest rates, according to the minutes of the central bank's January monthly meeting, released today.
This brought down the pound, because it's the first time since July that the 9-person MPC has voted unanimously to hold interest rates at 0.5%, where they've been since March 2009. This weakened the pound, because the prospect of lower interest rates for longer makes investing in the UK less profitable to international investors, cutting demand for sterling.
Moreover, the minutes of the Monetary Policy Committee's January meeting suggest that UK interest rates may stay low for the foreseeable future, conceivably pulling sterling further down. The MPC forecast that UK inflation will drop to 0.0% in early 2015, and that there's a "roughly equal chance" that price pressures may drop below zero.
Were UK inflation to fall below 0.0%, that would effectively eliminate the need for the Bank of England to hike interest rates to combat rising prices. This might well weaken the pound further.
Pound also under pressure, as UK wage growth disappoints
Furthermore, sterling also shed -0.91% versus the euro today, because UK wage growth rose -0.1% less than forecast in November, by just +1.8%, according to the Office for National Statistics today. This weakened the pound, because it means that people will have less money to spend than anticipated, putting a dampener on economic growth.
The pound also lost out, because UK unemployment fell the least in 15 months in the three months to December, by just -58,500, according to the ONS. This brought down sterling, because although it signals that the UK continues to create jobs, it's now doing so at its slowest pace since July to September 2013. This may signal that the UK economy is winding down.
