Bank of England rate decision no surprise and all eyes now on next week’s inflation report |
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| News - Banking | |||
| Written by Ray Clancy | |||
| Friday, 05 February 2010 09:42 | |||
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Yesterday’s announcement was expected and now with the UK out of recession, the Bank will soon be switching their focus to preventing a rapid rise in inflation, experts believe. Sterling found some support following the decision. Sterling rose in response to the announcement, moving nearly half a cent against the dollar to a high of $1.5871 from a pre-announcement low of $1.5806. Against the euro it rose to €1.1470, from €1.1429 before the release.  ‘The pound came off its day’s lows against the euro and we expect that it may continue to gain steadily,’ said Duncan Higgins, senior analyst at Caxton FX. But against the US dollar sterling remains near its three month low, trading some way below $1.60. And the pound could have more ground to lose, particularly if there is more positive news from the US labour market today, he added. Mark Bolsom, Head of the UK Trading Desk at Travelex, the FX Payments Specialist, said, the decision indicates that policy makers don’t have overwhelming confidence in sustained economic recovery. ‘This is not the vote of confidence investors will have been looking for. It’s unsurprising though as the UK only crawled out of recession in the last quarter of 2009 and the Bank will want to see at least two consecutive months of reasonable growth before they even consider tightening monetary policy,’ he explained. ‘With that in mind, we can expect interest rates to remain on hold at 0.5% for quite sometime. I stand by my prediction that they will remain at 0.5% until 2011 at least. The Bank of England has clearly sat on the fence with this decision, highlighting their fear that a double-dip recession is a distinct possibility,’ he added. RLAM's Economist, Ian Kernohan, believes that interest rates will be higher by the end of the year and says a lot will depend on next week’s inflation report and prospects of a hung parliament after the forthcoming election will make for some volatile trading. If inflation does jump interest rates will rise faster and higher, according to Robert Sinclair, director of the Association of Mortgage Intermediaries. ‘Any sudden increase in rates would cause real difficulties for millions of homeowners and put downward pressure on the housing market,’ he added. According to Joanne Segars, chief executive of the National Association of Pension Funds quantative easing artificially depressed gilt yields and increased pension funds’ reported liabilities. ‘We hope that lifting QE will raise yields and so reduce scheme deficits. We want the Government to play its part in supporting pension funds and help stem the tide of scheme closures by issuing more long dated and index linked gilts. This will help bring the stability schemes need,’ she explained. Add this page to your favorite Social Bookmarking websites          
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