Following on from my last post The Guardian/Observer today runs an article highlighting reasons why BOE hawks Weale and McCafferty will have a tough time in securing the three additional votes needed to raise UK interest rates.

All the signs are that the two current dissidents will have quite a tough job getting a majority. For a start, Weale and McCafferty have been proved wrong in their assumption that the pick-up in inflation seen in June would be permanent. News that came in after the MPC meeting showed that the annual increase in the cost of living fell from 1.9% in June to 1.6% in July.

What’s more, inflation could fall further over the coming months.With oil prices falling, inflation could fall even lower, perhaps below 1%. That would leave Carney with the tricky job of having to write a letter to George Osborne explaining why inflation was more than a percentage point below target at the same time as he was putting up interest rates

Finally, there is the subject of wages – touched upon in a speech by Ben Broadbent, one of the Bank’s deputy governors at Jackson Hole. Broadbent said he had been taken aback by the weakness of earnings in the past year and that went for other MPC members too. Weale and McCafferty have to be able to show that the weakness of pay is temporary and that a surge is coming. The evidence suggests otherwise

Full article here

I have long argued on these pages, and elsewhere, that interest rates hikes in the UK will seriously jeopadize a fragile recovery inflicting unwelcome pain on households and business alike. A key reason, but not the only one, for my bearish UK/GBP stance.

I have also though previously noted the irony that the longer those rate hikes are kept at bay then potentially we might consider that a bullish sentiment for the pound could be appropriate in that the recovery buys time to develop more strongly. The general view prevailing though is somewhat more myopic given that interest yield is held all-important in a “can’t see beyond the end of your nose” mentality.

This delicately poised situation/scenario, also being played out in the US, is set to run and run with the reality of the outcome remaining the great unknown.