Sterling dips after Blanchflower comments

Fri, 29 Sep 06 14:00 pm

The pound fell yesterday after comments made by monetary policy committee (MPC) member David Blanchflower that the next interest rate move could be downwards.

 The markets started the day with the pound worth $1.88705, €1.48285 and 221.815 yen.

Professor Blanchflower, the only member of the MPC to vote against the August interest rate hike told an audience in Cardiff that he saw the UK labour market loosening.

He noted that immigration from new EU countries had brought down wage inflation and the threat of price inflation may not be as serious as previously believed.

Howard Archer, chief UK and European Economist, commenting on the speech, said: Professor Blanchflower's comments cemented his place as the most dovish member of the MPC.

He said: "It is clear that he leans towards the view that the eventual next move in interest rates should be down rather than up - although he made clear during the September MPC meeting that he thought it would be unwise to reverse August's interest rate hike until it was clear that the 2007 pay rounds were remaining moderate."

Mr Archer added that the odds currently remain in favour of an interest rate hike in November.

"With growth seemingly holding up well at the moment, consumer price inflation above-target and rising, and the housing market buoyant - and given its concerns that wage settlements could rise during the next pay round - the Bank of England seems very likely to deliver another precautionary 25 basis point interest rate hike in November."

Sterling also suffered as UK GDP figures were revised downwards by 0.1 per cent to 0.7 per cent for the second quarter of 2006.

Mr Archer said about the figures: "We believe that growth is likely to lose some momentum over the coming months as consumers continue to face significant headwinds and exports are limited by a slowdown in global growth.

"Expected slower growth over the coming months should help to contain inflationary pressures and enable the Bank of England to leave interest rates unchanged at 5.0% for an extended period following November's anticipated 25 basis point hike."

He added that he forecasted GDP growth at 2.6 per in 2006 and 2.5 per cent in 2007, below the respective Bank of England forecasts of 2.8 per cent and 3.1 per cent.

Sterling falls as rate rise unlikely

Thu, 28 Sep 06 14:00 pm

The pound fell yesterday after official data showed GDP was to grow less than predicted.

At the beginning of the day sterling stood down at all major currencies at €1.47430, $1.86965 and 220.6615 yen.

The fall came as the Office for National Statistics revealed GDP rose 4.8 per cent over the last 12 months, compared with predictions of six per cent.

Slower growth takes off the pressure on inflation and means it is less likely that the Bank of England will increase interest rates this year, lest the economy be hit further.

In Europe, a pool of leading economists by Bloomberg suggests that eurozone inflation could drop below the European Central Bank's (ECB) target of two per cent, following falling oil prices

However, it is thought that the ECB will be unlikely to change from its tough stance on inflation as new German VAT increases in January are expected to draw inflation up again.

German business outlook settles

Wed, 27 Sep 06 14:00 pm

The outlook for German industry is settling, according to a new business survey, bringing the euro down as an interest rate rise now becomes less likely on the continent.

At the start of the day, the euro stood at a 15-month low against sterling at £0.66965 and at $1.26825 and 148.440 yen.

The Ifo Business Climate Index for industry and trade in Germany stood largely unchanged - against speculation that it would fall.

"The surveyed firms were clearly more satisfied with their current business situation but no longer so confident regarding the six-month business outlook," said Gebhard Flaig, of the University of Munich's Ifo Institute for Economic Research.

"These survey results indicate a continuation of the robust economic expansion overall, but a weakening is anticipated for early next year."

The dollar made gains yesterday on high than expected consumer confidence. Figures form the US Conference Board showed consumer confidence rose more sharply than expected.

Lynn Franco, director of The Conference Board Consumer Research Center, said: "A more favourable assessment of current conditions coupled with a less pessimistic short-term outlook boosted consumer confidence this month.

"However, even though consumers' concerns have eased, there is little to suggest a significant change in economic activity as we enter the final quarter of 2006."

Euro falls on low German inflation

Tue, 26 Sep 06 14:00 pm

Inflation in Germany fell to the lowest level since February 2004, according to the Federal Statistics Office.

The euro started the day worth £1.27415, 148.185 yen and £0.67100.

In September, consumer prices in Germany rose by 1.0 per cent - down from 1.7 per cent in August.

The fall was said to be down to falling heating oil and motor fuel costs. Import prices in Germany rose by 5.5 per cent compared with a year ago, down from rises of 5.6 per cent and 6.3 per cent in June and July respectively.

Lower inflation has reduced the pressure on the European Central Bank to increase interest rates.

In the UK, sterling was bolstered by comments from deputy governor of the Bank of England Sir John Gieve in the Financial Times.

Sir John said serious thought was given to a second interest rate rise this year at last month's meeting of the monetary policy committee, even though there was a unanimous vote to freeze rates.

Labour conference takes centre stage

Mon, 25 Sep 06 14:00 pm

This week eyes will be on Manchester for Tony Blair's last Labour party conference as prime minister.

Sterling started the week with the pound worth $1.90475, €1.48810 and 221.250 yen.

Today sees chancellor Gordon Brown making his speech to the conference and, while the prime minister is hoping for speculation about his successor to take a back seat during the conference, many will see it as Mr Brown's chance to set out his case to take power.

Mr Blair will be addressing the conference on Tuesday.

Today also sees the Bank of England issuing its Quarterly Bulletin. The bulletin will examine the latest movements in the sterling and global financial markets as well as the UK's export performance.

The housing market in both the US and the UK will also come into focus this week.

In the UK on Wednesday Barratt Developments will issue its full year results, while today Wolseley's results should show how the US property market is faring, although the company itself is not expected to be greatly hit by the slowing housing market across the Atlantic.

Barratt is expected to post a small rise in profits.

Dollar dips as economic expectations fall

Fri, 22 Sep 06 14:00 pm

The dollar fell yesterday as a leading index of economic growth decreased.

At the start of today the dollar stood at €0.78105, £0.52545 and 116.505 yen.

Research body the Conference Board's index of leading economic indictors fell by 0.2 per cent, placing the annual index down by 1.2 per cent.

However, the Conference Board said the data shows a "flat" trend rather than a weakening one.

The body stated: "Weaknesses and strengths among the leading indicators have been fairly balanced in recent months, resulting in a trend that is more flat than declining.

"Weakening housing permits and consumer expectations made the largest negative contributions to the leading index from February to August, offsetting significant positive contributions from average weekly hours in manufacturing and vendor performance."

The dollar continued to suffer from Wednesday's decision by the Federal Reserve to keep rates at 5.25 per cent.

In a statement, the federal open market committee said that although inflationary pressures seemed likely moderate over time, the risks still remain and "additional firming", or further rate rises, could be necessary depending on future inflation and economic growth data.

Sterling soars on BoE minutes

Thu, 21 Sep 06 14:00 pm

Sterling climbed towards 2006 highs against the euro after Bank of England (BoE) minutes and strong UK mortgage data were published yesterday.

This morning Sterling stood at €1.4892, $1.8932 and 221.5900 yen as expectations for a November interest rate rise remain high.

The BoE Monetary Policy voted 8-0 in favour of maintaining rates at 4.75 per cent in September, suggesting a rise is likely in November.

Jonathan Loynes, chief European economist at Capital Economics, said: "The minutes of the September Monetary Policy Committee meeting did little to alter the prospects of another rise in interest rates to five per cent in November. As expected, the committee voted 8-0 to leave rates unchanged this month.

"But it noted several times that the markets expect another hike in rates before the end of this year and did nothing to suggest that this expectation will not be met."   

Meanwhile, gross mortgage lending hit new record levels last month, according to the Council of Mortgage Lenders (CML).

Lending increased 7.2 per cent in August from the month before to total £32.7 billion, with growth predicted to continue over the next few months.

Howard Archer, chief UK and European economist of Global Insight, said: "August's increase in interest rates has added to the affordability pressures already stemming from moderate earnings growth, soaring utility prices and the marked overall renewed firming in house prices in recent months, and it currently looks likely that the Bank of England will raise interest rates by a further .25 basis points in November."

Euro falls on weak data

Wed, 20 Sep 06 14:00 pm

The euro fell yesterday after the ZEW economic expectations index fell again for September.

At the beginning of today one euro was worth £0.67315, $ 1.26775 and 148.46500 yen.

The ZEW index fell 16.6 points in September and now stands at -22.2 points, considerably below the historical average of 37.7 points.

The fall was put down to a drop in world demand following a slowdown in the US economy. Furthermore, an increase in German VAT at the beginning of next year is expected to slowdown domestic consumption.

ZEW president Dr Wolfgang Franz said: "The gap between expectations and the current situation again indicates that the positive business climate is at risk.

"The German government should not ignore these alarm signals and redress the serious imbalances in its economic policy."

The indicator also showed economic expectations in the eurozone are depressed, even though the index for the current economic situation rose.

In the UK, the focus today will be on the minutes from the last meeting of the Bank of England's monetary policy committee and will be studied for hints of any future interest rate rises this year – which would lift sterling.

Markets look to rate rises in UK and Europe

Tue, 19 Sep 06 14:00 pm

The prospect of interest rate rises has helped both sterling and the euro to strengthen.

The pound started the day up against most currencies at $1.88265, €1.48165 and 222.01500 yen.

In the UK, the release of the minutes from the last meeting of the Bank of England's monetary policy committee (MPC) this week is set to show how ready the MPC is to up rates for a second time this year, with many analysts expecting rates to rise in November.

The likelihood of a hike in interest rates also increased as the World Economic Outlook from the International Monetary Fund (IMF) published last week showed the UK economy is set to grow faster than anticipated at 2.7 per cent, fuelling inflation concerns.

In Europe, two members of the rate-setting council of the European Central Bank (ECB), Axel Weber and Klaus Liebscher, spoke out over the dangers of rising inflation.

Mr Weber and Mr Liebscher both spoke at the IMF annual meeting in Singapore last week about remaining vigilant over the threat of inflation into 2008, leading many to believe the ECB could increase interest rates to hold back rising prices.

Meanwhile, poor housing data from the US has furthered calls for the Federal Reserve to keep interest rates frozen, despite inflation fears, and helped to keep the dollar down.

Sterling continues to strengthen

Mon, 18 Sep 06 14:00 pm

Sterling hit a two-week high against the euro at the end of last week after upbeat economic data strengthened the likelihood of a November rate rise, but important data this week will further influence currency values.

This morning sterling was worth $1.8825, €1.4847 and 221.8400 yen, buoyant on last week's surveys pointing to strong house price growth and higher-than-expected consumer price inflation and retail sales.

More house price news is expected today when Rightmove publishes its September House Price Index, while on Wednesday the Council for Mortgage Lenders will release its monthly mortgage lending figures.

Also on Wednesday the Bank of England will publish its Minutes of the Monetary Policy Committee (MPC) meeting, which will add further insight into forthcoming rate rises.

On the political front, the Liberal Democrats are holding their annual conference in Brighton this week and the government will tomorrow make an announcement on the luggage restrictions at British airports, introduced after the terror alerts last month.

Tesco and Woolworths will announce their interim results on Wednesday, while another supermarket chain, Morrisons, will announce its results on Thursday.

Sterling rises on positive economic data

Fri, 15 Sep 06 14:00 pm

Sterling rose to a near year high against the euro yesterday following positive data on UK house prices and retail sales.

This morning sterling was worth $1.8860, €1.4831 and 221.8300 yen, strengthening on yesterday's reports from the Royal Institute of Chartered Surveyors (Rics) and the Office for National Statistics (ONS), which further raised expectations of an interest rate rise.

ONS figures showed retail sales rose 0.3 per cent from July to August, meeting analysts' expectations and prompted by cooler weather and rising house prices.

"Retail sales recovered as expected in August and the underlying trend remains broadly healthy, indicating that the interest rate at the beginning of the month did not have an immediate major dampening impact on the consumer," said Howard Archer, chief UK and European economist of Global Insight.

"Overall, the retail sales data are likely to sustain expectations of a November interest rate hike."

Expectations of a rate rise were also strengthened by a report from Rics which showed house prices rose at their fastest rate in more than two years.

House prices increased for the fifth successive month in August and buyer inquiries rose faster in the month than at any time since September 2003.

"Last week's interest rate freeze will mean that the housing market will maintain its current positive momentum," said Rics spokesman Ian Perry.

Sterling wobbles on earnings data

Thu, 14 Sep 06 14:00 pm

The sterling fell slightly against the dollar and euro yesterday after weaker-than expected earnings data dampened raising expectations of a Bank of England rate rise in November.

This morning sterling was worth $1.8771, €1.4807 and 220.8800 yen, following Office for National Statistics (ONS) data on earnings and unemployment.

Average pay growth rose 4.4 per cent in the quarter to July, slightly below analysts' expectations of 4.5 per cent but nonetheless the fastest growth since April 2005.

Howard Archer, chief economist at Global Insights, commented: "The underlying earnings data are actually largely benign, even though the three-month headline growth rate rose to a 15-month high of 4.4 per cent in July influenced by bonus payment factors.

"Significantly, underlying annual average earnings growth was just 3.7 per cent in the three months to July, while it rose just 3.3 per cent in July itself. This is well below the 4.5 per cent level generally considered to be consistent with the Bank of England's 2 per cent inflation target."

He added that current muted earnings data are "unlikely in themselves to deter the Bank of England from hiking interest rates again in November".

The case for a rate rise was strengthened by separate ONS data showing that unemployment benefits claims fell unexpectedly in August by 3,900 to 950,100.

Mr Archer commented: "The first fall in claimant count unemployment in 18 months in August indicates that the improved growth in recent months has finally been sufficient to generate enough jobs to meet the expanding labour force.

"Nevertheless, we suspect that unemployment will move back up over the coming months as growth fails to sustain the second quarter performance."

Sterling rises on high inflation data

Wed, 13 Sep 06 14:00 pm

Sterling climbed against the dollar and the euro yesterday as the likelihood of a UK rate rise in November increased with higher-than-expected inflation data.

This morning sterling was worth $1.8752, €1.4773 and 220.8400 yen, with the pound rebounding from Monday's multi-week low.

The Consumer Price Index rose 0.4 per cent to 2.5 per cent in August, beating expectations of 2.4 per cent and equalling the highest rate since Labour came to power nine years ago.

Driven by large rises in gas and food prices, the unexpectedly high data raises the likelihood that the Bank of England (BoE) will have to hike interest rates before the end of the year.

Jonathan Loynes, chief European economist at Capital Economics, said: "Looking ahead, inflation is set to rise further over the coming few months in response to the latest round of gas and electricity price hikes and the rise in university tuition fees.

"Nonetheless, we remain confident that inflation will fall back sharply next year as energy effects finally fade and core inflation remains pretty subdued."

He added: "Overall, the figures leave the case for a further rise in interest rates very finely balanced. Much will hang on the forthcoming news on activity, with Thursday's figures on retail sales the next key indicator of the strength of the economy."

The BoE unexpectedly raised rates a quarter point to 4.75 per cent in August

Dollar rises against yen

Tue, 12 Sep 06 14:00 pm

The dollar has hit a near two-month high against the yen as the Japanese currency suffered from doubts over another Bank of Japan (BOJ) rate rise, triggered by weak capital spending data.

Sterling this morning is worth $1.8671 and 219.5700 yen, while the dollar stands at 117.5900 yen.

Reports in Japan yesterday revealed that machinery orders posted their largest monthly fall in almost 20 years in July, fuelling expectations that the BOJ will not raise interest rates in the short term.

The euro stood firm against the dollar and the yen following heightened expectations of a rate rise by the European Central Bank, with board member Juergen Stark suggesting a probable hike in October.

However, the dollar could be dented by forthcoming news on the US trade deficit, which is expected to widen to $65.50 billion from $64.80 billion in June – according to a Reuters poll of economists.

Such a monthly deficit would be the third-highest on record and the largest since January's $66.2 billion deficit.

TUC conference begins

Mon, 11 Sep 06 14:00 pm

Today sees the start of the UK's annual TUC conference, with Labour's leadership controversy likely to dominate proceedings.

Sterling starts the week at $1.8658, 218.82 Yen and €1.4713, as uncertainty over prime minister Tony Blair's departure date continuing to weigh down the pound.

Mr Blair will deliver a speech at the TUC conference on Tuesday, but union leaders are reportedly planning to greet it with silence rather than a standing ovation. The UK's largest trade union conference ends on Thursday.

Derek Simpson, general secretary of Amicus, Labour's biggest single financial donor, said union representatives were in "open revolt" in frustration at government policies which he believed were "failing".

Meanwhile, on Monday the GMB will publish a study on how much money is injected into the economy by increases in wages due to the National Minimum Wage.

Bovis Homes will releases its interim results on Monday, defence company Cobham and retailer French Connection on Tuesday, BAE Systems on Wednesday, and John Lewis will disclose its interim results on Thursday.

Elsewhere, education secretary Alan Johnson will deliver a keynote speech on Wednesday, entitled 'In defence of the state: the role of education in tackling poverty'.

Blair uncertainty keeps pound down

Fri, 08 Sep 06 14:00 pm

Yesterday Tony Blair failed to give a date for stepping down, only admitting that this month's Labour Party conference will be his last as leader.

Sterling responded to the news by continuing to head downwards, starting Friday at $1.87460, €1.47280 and 217.67 yen.

The prime minister told reporters after visiting a school: "The next party conference in a couple of weeks will be my last party conference as party leader. I am not going to set a precise date now. I don't think that's right."

He added: "I think the precise timetable has to be left up to me and be done in the proper way."

Chancellor Gordon Brown echoed this by saying: "I want to make it absolutely clear today, that when I met the prime minister yesterday, I said to him - as I've said on many occasions and I repeat today - it is for him to make the decision."

While the markets were shaken by the certainty, chief UK and European economist at Global Insight Howard Archer said the market implications would be "very limited".

He said: "The announcement is only really confirming what has seemed ever more likely in recent months."

He added: "The macroeconomic implications are likely to be minimal, as it is Brown who has been essentially driving the economy for the past several years anyway. One can assume that as prime minister, Brown will retain a key interest in the running of the economy.

"He is also likely to ensure that his replacement as chancellor is very much on the same wavelength (Ed Balls seems a distinct possibility), so major changes affecting the economy are unlikely."

Mr Archer, however, added that dangers did exist in the fact Mr Brown is not guaranteed to enter 10 Downing Street.

He said: "The main risk to the markets is not so much in the short-term, but the medium-term. While Gordon Brown currently looks highly likely to be the man to replace Blair, nine to ten months is a long time in politics and it is not impossible that some credible challengers emerge to Mr Brown."

He added that Mr Brown's position could potentially be weakened if the economy took a severe downturn in the next year, as he is closely linked with its performance.

"While such a downturn currently seems unlikely, there are significant risks to the economic outlook. If increasing uncertainty emerges over the coming months about Brown's position as the next prime minister, then the markets could be increasingly adversely affected," the economist concluded.

Pound falls on Blair crisis

Thu, 07 Sep 06 14:00 pm

Sterling saw losses yesterday against all major currencies as prime minister Tony Blair faced political crisis with seven government members resigning.

With the PM's future in doubt the pound fell to $1.88430, 219.85000 yen and €1.46950.

Mr Blair was yesterday pushed to set a timetable for the transition to a new leadership with the Sun claiming the PM would be out of office by July 2007 and meetings with chancellor Gordon Brown said to be "acrimonious".

Mr Brown has refused to comment on recent events.

It is expected that the PM will outline his plans to leave office later today with him staying in power until the Labour party conference next autumn, by which time his successor will have been chosen.

Of the seven members of the government to resign, the most senior was Tom Watson, a junior defence minister, the others being parliamentary private secretaries – the lowest rung on the ministerial ladder.

Sterling also suffered yesterday with the Nationwide consumer confidence index falling nine points to its lowest level in two and a half years.

However, manufacturing and industrial output data showed growth in line with expectations at an annual rate of one per cent.

UK service sector and high street sales cool

Wed, 06 Sep 06 14:00 pm

August saw growth in the UK service sector and high street sales slow, according to two new surveys, suggesting last month's interest rate rise is starting to bite.

This morning sterling was worth $1.89425, 220.22000 yen and €1.47690, with many assuming the new data will help to hold off the Bank of England from raising interest rates for a second consecutive month.

Figures from the British Retail Consortium (BRC) show sales were up 2.5 per cent compared with last year – although in the wake of the July bombings last year sales were weak.

The three month trend rate for growth fell to 2.7 per cent from 4.1 per cent in July for like-for-like sales, although total sales were down just 0.2 per cent to 5.4 per cent, reflecting growth in retail space.

Kevin Hawkins, BRC director general, said: "Any suggestion that we are seeing a significant and sustainable return to the sort of sales growth we were reporting two or three years ago is simply not supported by the evidence.

"The recent increase in interest rates has yet to work through to consumer spending or the housing market. The outlook for the next few months is therefore very uncertain."

Helen Dickinson, head of retail at KPMG, added that there were doubts whether current growth rates are sustainable.

In the service sector, the Chartered Institute of Purchasing and Supply index fell over one point to 56.7 – showing growth remains, but at the lowest level since March 2003, when the Iraq war commenced.

Yen rises on rate speculation

Tue, 05 Sep 06 14:00 pm

The Japanese yen rose yesterday as traders awaited the governor of the Bank of Japan to comment on the future of interest rates.

At the start of the day the yen stood at $0.0086, €0.0067 and £0.0045.

Governor of the Bank of Japan Toshihiko Fukui is to speak out on Friday after a two-day policy meeting over the future of rates in the country, with many speculating he might give the nod to a rate rise.

The bank is expected to keep Japanese interest rates at 0.25 per cent, but Mr Fukui could suggest that rate rises could come before the end of the year.

Monday also saw official Japanese statistics released showing capital spending by businesses jumped by 16.6 per cent between April and June compared with a year ago.

The rise in capital sending is at the highest on record and shows the Japanese economy has been performing better than expected – after previous weaker data.

Bank to set rates and effect of terror alert revealed

Mon, 04 Sep 06 14:00 pm

This week sees the Bank of England's monetary policy committee (MPC) meeting to set interest rates.