Markets hit by fears that gloom on economy may be overdone

DIANE COYLE

Economics Correspondent

Concerns that the economic outlook might not be as gloomy as feared hit interest rate hopes and sent financial markets lower yesterday.

Gilts and shares in London ended lower, following Germany's lead, although the Dow Jones Average closed up 33.60 at a record 5,407.59

Remarks by Howard Davies, Deputy Governor of the Bank of England, that growth as high as 3 per cent this year was well within the realms of possibility followed figures showing the narrow money supply was slightly more buoyant than expected last month.

City analysts do not expect the Chancellor, Kenneth Clarke, to reduce base rates after his meeting with Eddie George, Governor of the Bank of England, tomorrow, after two moves in the past two months, but are still betting on one more quarter-point reduction from the current level of 6.25 per cent before midsummer.

Gilts ended more than a point lower in heavy trading, while the FT-SE 100 index closed down nearly 35 points at 3,746.6.

A weak performance by German government bonds yesterday also affected gilts. The bund market fell after figures showing an increase in German output for the second month running in December.

US treasuries echoed the weakness in European markets, overshadowed by the prospect of record sales of bonds due this week. The Treasury is scheduled to auction bonds worth $44.5bn between today and Friday.

The dollar fell below 105 due to uncertainty about Japanese buyers' interest in the auction. It was down more than a pfennig at DM1.4625.

Cash in circulation in the UK rose more than expected in January, even though a big drop in banks' balances held at the Bank of England meant the overall growth of the narrow money measure, M0, dipped.

Narrow money fell 0.2 per cent during the month due to this pounds 128m decline in bankers' balances, following a 0.9 per cent jump in December. M0's annual growth fell to 5.3 per cent from 5.7 per cent.

Notes and coins in circulation rose 0.3 per cent last month, taking year-on-year growth to 5.7 per cent - similar to its rate of growth in the previous six months. The Bank warned adjustment for seasonal variation was difficult over Christmas and the new year.

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Call Centre Debt Collector - Multiple Roles

£21000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

Guru Careers: Financial Director / FD / Senior Finance Manager

Up to 70k DOE: Guru Careers: We are seeking an experienced Financial Director ...

Recruitment Genius: Junior / Apprentice Sales Executives - OTE £50,000

£11000 - £50000 per annum: Recruitment Genius: This financial company offer ma...

SThree: Recruitment Consultant

competitive + incentives + uncapped comms: SThree: Did you know? 98% of our di...

Day In a Page

Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks
The haunting of Shirley Jackson: Was the gothic author's life really as bleak as her fiction?

The haunting of Shirley Jackson

Was the gothic author's life really as bleak as her fiction?
Bill Granger recipes: Heading off on holiday? Try out our chef's seaside-inspired dishes...

Bill Granger's seaside-inspired recipes

These dishes are so easy to make, our chef is almost embarrassed to call them recipes
Ashes 2015: Tourists are limp, leaderless and distinctly UnAustralian

Tourists are limp, leaderless and distinctly UnAustralian

A woefully out-of-form Michael Clarke embodies his team's fragile Ashes campaign, says Michael Calvin
Blairites be warned, this could be the moment Labour turns into Syriza

Andrew Grice: Inside Westminster

Blairites be warned, this could be the moment Labour turns into Syriza
HMS Victory: The mystery of Britain's worst naval disaster is finally solved - 271 years later

The mystery of Britain's worst naval disaster is finally solved - 271 years later

Exclusive: David Keys reveals the research that finally explains why HMS Victory went down with the loss of 1,100 lives
Survivors of the Nagasaki atomic bomb attack: Japan must not abandon its post-war pacifism

'I saw people so injured you couldn't tell if they were dead or alive'

Nagasaki survivors on why Japan must not abandon its post-war pacifism
Jon Stewart: The voice of Democrats who felt Obama had failed to deliver on his 'Yes We Can' slogan, and the voter he tried hardest to keep onside

The voter Obama tried hardest to keep onside

Outgoing The Daily Show host, Jon Stewart, became the voice of Democrats who felt the President had failed to deliver on his ‘Yes We Can’ slogan. Tim Walker charts the ups and downs of their 10-year relationship on screen