ECB up rates, BoE holds firm
Yesterday the euro strengthened as the European Central Bank (ECB) increased interest rates to 3.25 per cent. In the UK, the Bank of England kept rates at 4.75 per cent.
At the start of the day sterling was down at $1.87440 and 1.47845.
The fifth interest rate rise from the ECB in less than a year was widely predicted and some analysts forecast a further hike this year to counter inflation.
Eurozone inflation fell below the ECB's target in September, but however the bank's president Jean-Claude Trichet pointed out that the average rate of price rises was expected to stay over two per cent into next year.
He remained positive on the economic outlook for the eurozone, despite pressures that might be exerted with the increase in German VAT next year.
In the UK, the common consensus is that interest rates will rise in November after this month's freeze from the monetary policy committee (MPC).
Ray Boulger of John Charcol explained that falling oil prices could bring down inflation, and rates next year.
He said: "With the oil price now a quarter below its peak of only two months ago and (in sterling terms) well over ten per cent below its price a year ago the Consumer Price Index (CPI) should soon start to reflect this, although many benefits won't be felt by consumers until next year.
"This prospect will mean that not only will the MPC's concern that the CPI will breach three per cent, forcing the governor to write a letter of explanation to the chancellor, be diminished, but that the possibility of inflation falling to the target two per cent as early as the first half of next year is realistic."