So we had dismal GDP reading for Q4 yesterday and then relatively hawkish minutes from the MPC this morning.

However, the news that it was a 6-2-1 split at the January meeting, with Weale joining Sentance and voting for a 25bp rate hike, doesn't mean rates are moving anytime soon.

Since the meeting earlier this month economic data has deteriorated, culminating with the GDP release yesterday. So although the Bank included in the minutes that rising CPI might require a withdrawal of some stimulus, they might reverse course in February. After all, as austerity takes hold in the UK, the Bank needs to plug growth gaps with lose monetary conditions.

The minutes also noted that wage pressures remain moderate, which also reduces the need for a rate hike, and supports Mervyn King's view that inflation will be temporary.

So even though another committee member wants to hike rates, a rate hike is not imminent. Due to the change in tone in economic data in recent weeks, the February meeting is now far more interesting. Also of note, Andrew Sentance is leaving the MPC in May, which removes one of the hawks from the committee - we don't know yet who he will be replaced by.

On top of the minutes, weak BBA mortgage loan data for December was also released today, which highlights the slowdown in housing in the UK. Mortgage applications over the month fell to their lowest level in nearly 2 years.

So overall we think sterling is likely to remain on the downside, and 1.6000 was the peak for cable. While GBPUSD may take a breather here, the UK swap rate suggests a further decline to the 1.5200 region.

GBP 3-month swap rate (WHITE LINE) and GBPUSD


Best Regards,

Kathleen Brooks| Research Director UK EMEA |

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