Service Sector Slowing Down Economy

Paresh Davdra is the Dealing Director of RationalFX, Currency Specialists. Tuesday 11th November 2014 15:06 EST

The Bank of England, once widely expected to start weaning Britain off near-zero interest rates this month, now looks set to signal no rise in interest rates until the middle of next year. The BoE kept rates at 0.5 percent, their level since the depths of the financial crisis in 2009.

The Bank of England will produce its quarterly inflation report on Wednesday which will have an impact on the pound strength. With wage growth still largely absent and inflation dropping to just 1.2 percent in September, noises from within the BoE suggest that the timing of a first interest rate rise could be heading further over the horizon.U.S. job growth increased at a steady rate in October and the unemployment rate fell to a fresh six-year low, underscoring the economy's resilience in the face of slowing global demand.

Despite the strengthening jobs market, wage growth remained tepid, suggesting little need for the Federal Reserve to hurry to start lifting interest rates.Productivity rose more than projected in the third quarter, helping to contain labour costs even as employment picks up. The US Labour Department’s measurement of employee output per hour also increased 2 percent year on year.

Employers added 214,000 new jobs to their payrolls last month, the Labour Department said on Friday. The unemployment rate fell to 5.8 percent from 5.9 percent giving a further sign of strength. The jobless rate has dropped by 0.8 percentage point since January, and employment gains have now topped 200,000 for nine straight months, the longest stretch since 1994.European Central Bank chief Mario Draghi got his colleagues to sign up to a target for pumping money into the ailing euro zone economy, a raft of GDP reports are likely to show just why more help may be needed.

The ECB did not add to its arsenal of measures last week and is expected to wait and see the take-up of a second round of cheap loans being offered to banks in December before considering anything further.But after signs of discord, Draghi did secure unanimous agreement that the ECB balance sheet would "move towards the dimensions it had at the beginning of 2012" when it was about 1 trillion euros higher than now.

Economists seized on the word "towards", which casts some doubt over whether it amounts to a hard target. And the ability of the ECB to swallow its objections to full quantitative easing remains in question.

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