The Minutes of the latest Bank of England MPC meeting, held on the 4th and 5th of May, continued to show the same voting pattern than in the previous months, which was broadly in line with expectations. The Committee stressed that it was confronted with two key questions namely how prolonged the current weakness in demand would be and how persistent the impact on inflation of increases in VAT, energy and import prices would be, either directly or via second-round effects. The MPC observed that global growth had eased in the first quarter, but added that activity balances from business surveys were consistent with continuing modest underlying growth in the bulk of the economy. On inflation, the balance between upside and downside risks to the outlook in the medium term had not changed sufficiently over the month to change their views on monetary policy. Three members concluded that the argument for removing some of the monetary stimulus remained strong and the projections in the May Inflation Report had reinforced that judgement. Dale and Weale preferred to increase the rate by 25 basis points, while Sentance voted to raise the rate by 50 basis points. For the other members, an increase in the Bank Rate was not yet warranted as there was little evidence that elevated inflation expectations were becoming entrenched in wage and price-setting. Furthermore, they concluded that it was still too early to know that the softening in activity was temporary, but they added that in time some withdrawal of stimulus would become necessary, which is new in the minutes. Nevertheless, the Inflation Report projections implied that this did not need to occur immediately. For Posen an expansion of the Committee’s programme of asset purchases remained warranted. Overall, the details show a small opening to a withdrawal of stimulus, as was already indicated by the Inflation Report, but the poor economic data of recent encourage the MPC to wait for a few more months.
In the UK, jobless claims rose for a second straight month in April, while the consensus was looking for stabilization. Jobless claims rose by 12 400 in April, the sharpest monthly increase in more than one year, to reach 1.47 million. There were however special factors related to woman joining the measure of unemployment as they move from being classified as lone parents to the jobseekers allowance. Nevertheless, also the previous figure was upwardly adjusted. The ILO unemployment rate for the three months to March declined to 7.7% from 7.8% and also earnings data for March surprised on the upside. Earnings excluding bonuses, unexpectedly dropped from 2.2% to 2.1%. This is another mixed bag of labour market data from the UK, but the claims indicate that the labour market is weakening again after an improvement last year, probably due to the lay offs in the public sector.