Sterling at two-month low as rates are kept on hold
Friday 07 August 1998
Bonds rose as dealers speculated that the next move in UK interest rates would be down.
Jonathan Loynes, at HSBC Securities, said: "If the MPC had wanted to raise rates today - and some members almost certainly did - it had a number of perfectly reasonable excuses. The fact that a majority of members chose not to therefore suggests that there is a very good chance that rates have now peaked."
However, not all analysts agreed that June's rate rise was the last, warning that the Monetary Policy Committee had wrong-footed the experts before.
Economists speculated that the MPC was swayed by a raft of gloomy business surveys released over the past month, as well as growing signs of a slowdown in UK services. Yesterday saw the release of yet another downbeat business survey, which revealed that retail sales growth in July was the slowest for three years.
The Confederation of British Industry distributive trades survey found that 37 per cent of retailers reported increased sales last month compared with the corresponding period last year, while 31 per cent said sales were down. This means a positive net balance of just 6 per cent of retailers reported a sales increase in July, compared to 19 per cent in June and 25 per cent in May.
Alastair Eperon, chairman of the CBI's distributive trades survey panel, said: "The further slowdown in retail sales growth suggests that consumers have been discouraged by a combination of high interest rates and bad weather."
The weakness of the survey surprised the City, which had been expecting a more gradual slowdown in the growth of retail sales. Simon Briscoe, of Nikko Europe, said: "The boom of the last two years is now consigned to the history books."
The consensus view in the City was that base rates have peaked, and sterling fell by more than a pfennig to close at DM2.887. The September long gilt future rose 0.32 to 109.7.
The MPC gave no indication of why it decided to hold rates or whether rates were now high enough, although the Bank of England will provide a detailed assessment of the outlook for inflation next week when it releases its quarterly inflation report. As rates were not raised yesterday, analysts are now expecting a benign inflation report, and predicted that the Bank's forecasts for economic growth would be gloomy.
However, several economists refused to rule out another rate rise, saying that the MPC had surprised on the upside before. Sharda Persaud, of Paribas, said: "We had a benign inflation report in May, and the MPC hiked [rates] in June." Michael Saunders, of Salomon Smith Barney, said: "If the pound now falls sharply then the MPC may have to reconsider its view."
Separately yesterday, the Department of the Environment said housing starts were down 11 per cent in the second quarter and construction new orders were down 4 per cent, adding to the evidence of economic slowdown. The Society of Motor Manufacturers and Traders said new car registrations rose slightly in July, up 5.1 per cent to 37,896.
Outlook, page 17
International Women's Day 2014: The shocking statistics that show why it is still so important
Malaysia Airlines: Search for true identity of passengers with stolen passports launched as terrorism concern grows
Singapore sting: Sky-high prices are pushing locals to the edge of affordability
International Women’s Day: 'When a man gives his opinion, he's a man. When a woman gives her opinion, she's a bitch' - feminist quotes from female icons to inspire you
Dead woman's body found sitting in a car after six years after direct debits ran $54,000 bank account dry
Britain's top vet sparks controversy with call for ban on slashing animals' throats in 'ritual' slaughters for halal and kosher meat products
Ukraine crisis: Russia dismisses '3am ultimatum' as 'total nonsense'
If you're horrified by a flame-roasted dog, you should be shocked at a hog roast
Poor 'live like animals' says Boris's privately educated sister after going on 'poverty safari'
White people become less racist just by moving to more diverse areas, study finds
Exclusive: Impact of immigrants on British workers ‘negligible’
- 1 International Women's Day 2014: The shocking statistics that show why it is still so important
- 2 Orgasm machine to deliver climax at the push of a button
- 3 Teacher shows sex tape featuring herself to pupils during class by mistake
- 4 Singapore sting: Sky-high prices are pushing locals to the edge of affordability
- 5 Liam Neeson turned down James Bond role because late wife Natasha Richardson said she wouldn't marry him if he took it
iJobs Money & Business
£12000 per annum: Inspiring Interns: The company works with Tier 1 FTSE 100 Ba...
£32000 - £36000 per annum + generous benefits: Pro-Recruitment Group: * TAX * ...
£37000 - £40000 per annum + £20000 benefits package: Pro-Recruitment Group: **...
£30000 - £35000 per annum + generous benefits: Pro-Recruitment Group: Mixed Ta...