Sterling slips to six-day low as data feeds doubts over BoE rate outlook

LONDON (Reuters) - Sterling dipped to a six-day low on Wednesday after data showed British wage growth was still lagging well behind inflation, feeding doubts over the Bank of England’s interest rate outlook.

Pound coins are seen in this photo illustration taken in Manchester, Britain September 6, 2017. REUTERS/Phil Noble/Illustration

Although investors still broadly expect the Bank to hike rates in November, when it releases its next Inflation Report, many are betting it will then keep them on hold for some time - perhaps throughout 2018 - and the latest numbers supported that view.

Wage growth came in slightly stronger than expected at an annual 2.2 percent in the three months to August, but the number of people in work rose by about half as much as it did in the three months to July.

The pound had already slipped half a percent on Tuesday after comments from BoE policymakers were interpreted as broadly dovish by markets. It added to those losses on Wednesday, falling as much as 0.4 percent after the data to a low of $1.3140 before recovering a little.

“BoE Governor Mark Carney has signalled that an interest rate rise is close as the economy reaches a ‘tipping point’ (but) analysts remain wary, with no definitive date set for a shift in monetary policy, putting pressure on the pound,” said Paresh Davdra, CEO of RationalFX.

“Sterling was also unsettled by some of the comments made by one of the newer members of the BoE’s Monetary Policy Committee (on Tuesday),” he added.

The Bank’s new deputy governor distanced himself from the rate-setting committee’s majority view that interest rates probably need to rise soon, while another newcomer said her support for that position was “very contingent on the data”.

Policymakers also told parliament that upward pressure on inflation from sterling weakness would start to wane in the coming months.

Data on Tuesday showed Britain’s inflation rate hit a 5-1/2-year high of 3 percent, above the central bank’s 2 percent target though in line with expectations.

“Irrespective of whether earnings (growth) was 2.1 or 2.2 percent, it’s still suggesting that consumption is likely to be depressed on the back of the fall in real wages,” said Rabobank currency strategist Jane Foley.

Traders are now eying retail sales data due on Thursday for more clues on the health of the British economy, as well as a speech in Brussels to fellow EU leaders by Prime Minister Theresa May, who is trying to break a deadlock in Brexit talks.

May has not yet set a date for the next stage in the passage of legislation to sever ties with the European Union, her spokesman said on Wednesday, after the BBC reported it would not be until November, later than many had expected.

Reporting by Jemima Kelly and Polina Ivanova; Additional reporting by Fanny Potkin; Editing by Raissa Kasolowsky and Hugh Lawson