The UK pound fluctuated around US$1.61-1.62/UK£ for much of October and early November as the currency appeared to have reached a stable level against the dollar (see daily chart, next page). The Bank of England held rates at 0.5% and maintained the targeted size of its Asset Purchasing Programme at a total of £375bn last week, in line with the terms set out by forward guidance. However, questions continue to be raised over when a tightening of policy will occur, owing to a greater momentum in growth and faster decline in unemployment than initially expected. Under forward guidance, the Bank indicated that its current monetary stance would be held until the unemployment rate falls to 7.0% unless risks to inflation, which fell to 2.2% (y-o-y) in October, become more significant. Preliminary estimates for Q3 GDP released in October showed that the economy expanded 1.5% (y-o-y) and 0.8% (q-o-q), while the jobless rate ticked down to 7.6%in September, from 7.7% in August. The number of claimants of job-seekers allowance also posted its largest monthly fall since 1997, with the total number dropping by 41,700 over the same period. However, concerns are mounting over the sustainability of the current recovery, with the service sector appearing to account for the majority of the upturn (contributing 0.57 percentage points to the q-o-q figure). Observers have also raised fears of another housing bubble after mortgage approvals hit a 5-year high in August, while the government’s ‘help to buy’ scheme initiative added to demand for home ownership.
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