"A recovery in business investment is a precondition for a sustained wider recovery. I suspect that this may still be a little time in coming, and that more rapid investment growth may not show through until later this year and into 2015."
- Ian McCafferty, Bank of England policy maker
The Pound was poised to become one of this year's top performers taking into account the strength of Britain's economy. Moreover, analysts were making bets the central bank will raise interest rates in the first quarter of 2014, as situation in the labour market improves, while inflation reached BoE's target level of 2%. The latest MPC report, however, diminished these hopes, as policymakers see no urgency for a rate hike. On Thursday the cable breached an important resistance level at 1.66; however, another rally is not expected amid uncertainty surrounding BoE's future actions.
According to one of the U.K. policymakers Ian McCafferty, the central bank will now focus on a business investment that still lags behind other indicators and is not expected to improve until the end of the year. Usually, improvement in business investment lags household consumption; however, in case of the current cycle, the delay may be longer than usual, taking into account the shock to demand and persistent uncertainty surrounding economic outlook.
At the same time, the BoE can revise its unemployment threshold, lowering it to 6% or even lower. Additionally, the BoE can scrap the jobless guidance and stick to inflation, which is at 2%, allowing them to remain loose for some time. Finally, Mark Carney can assure markets rates will remain low for the foreseeable future, tweaking their guidance as the Fed and the ECB did.
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