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Quotes from Societe Generale Cross Asset Research:
- UK rate expectations firmed and sterling rallied after the market was surprised by the fall in the unemployment rate through the 7% forward guidance threshold.
- However, the Bank of England was already prepared for this, having announced in February how it would modify forward guidance at that point. The MPC would move the goalposts when 7% was reached, to use a more subjective assessment of a wider set of variables that would show that slack still existed in the labour market.
- The message was clear; reaching 7% would not prompt a rate increase because under-employment continues to exist. Under-employment will not suddenly disappear so we remain comfortable with our forecast that the first rate increase will be made in Q1 2015.
