- Inflation Report
Another disappointment, again. Following sleepy BoE meeting last week, investors hoped Carney will unveil the precise data when the first rate hike will be made during the release of May's Inflation Report. The report, however, produced only a modest change to the assessment of the remaining slack in the U.K. economy. February's report showed there is spare capacity of about 1%-1.5%, while this time only 1% left until the economy reaches its full capacity. At the same time, the IR confirmed a high level of uncertainty among the MPC members on the definition of slack in the wider economy, especially in the labour market. Another disappointment was the decision to leave the inflation and growth outlook broadly unchanged. But what is more important, the IR showed the central bank has lowered its projections regarding the labour market. The unemployment rate now is expected to hit 6.5% in the second quarter of the year, compared with 6.7% expected in February.
Meanwhile, the labour market continued to strengthen, as unemployment rate fell further to the rate that has not been seen since February 2009, as the economy created work at a record pace. The overall jobless rate hit 6.8% in the first quarter, 0.1% lower than three months ago, while the number of people employed soared to 30.43 million– the highest since records began in 1971. Even though the number of people claiming for jobless benefits missed expectations, the indicator still declined by 25,100.
© Dukascopy Bank SA