The pound has strengthened this morning following the release of the latest UK employment report. Strong employment data boosts the case for the Bank of England (BoE) to hike rates in December, however, economists at MUFG Bank expect the GBP to slow its gains as market expectations are too high.
UK labour market gives green light for gradual BoE hikes
“The stronger pound has been encouraged both by hawkish comments from BoE officials yesterday and reassuring evidence this morning that the UK labour market has held up well after the jobs furlough scheme ended in September.”
“The developments support our view that the BoE should have enough further clarity on labour market developments by the December MPC meeting when we expect the first rate hike (15bps) to be delivered. Current plans for only gradual tightening would suggest that market expectations for another follow-up hike as soon as February would likely be too soon though.”
“A more gradual pace of tightening should help to dampen upside risks for the pound which has failed to benefit from rising nominal yields in recent months as real yields have continued to fall.”
