Sterling at two-month low as rates are kept on hold

STERLING HIT a two-month low yesterday after the Bank of England decided to keep interest rates on hold at 7.5 per cent.

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

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Claims Administrator

£16000 - £18000 per annum: Recruitment Genius: A position has arisen within th...

Ashdown Group: Development Manager - Rickmansworth - £55k +15% bonus

£50000 - £63000 per annum + excellent benefits : Ashdown Group: IT Manager / D...

Recruitment Genius: Security Officer

£16500 per annum: Recruitment Genius: Applicants must hold a valid SIA Door Su...

Ashdown Group: Business Analyst - City, London

£50000 per annum: Ashdown Group: Business Analyst - Financial Services - The C...

Day In a Page

Inside the Kansas greenhouses where Monsanto is 'playing God' with the future of the planet

The future of GM

The greenhouses where Monsanto 'plays God' with the future of the planet
Britain's mild winters could be numbered: why global warming is leaving UK chillier

Britain's mild winters could be numbered

Gulf Stream is slowing down faster than ever, scientists say
Government gives £250,000 to Independent appeal

Government gives £250,000 to Independent appeal

Donation brings total raised by Homeless Veterans campaign to at least £1.25m
Oh dear, the most borrowed book at Bank of England library doesn't inspire confidence

The most borrowed book at Bank of England library? Oh dear

The book's fifth edition is used for Edexcel exams
Cowslips vs honeysuckle: The hunt for the UK’s favourite wildflower

Cowslips vs honeysuckle

It's the hunt for UK’s favourite wildflower
Child abuse scandal: Did a botched blackmail attempt by South African intelligence help Cyril Smith escape justice?

Did a botched blackmail attempt help Cyril Smith escape justice?

A fresh twist reveals the Liberal MP was targeted by the notorious South African intelligence agency Boss
Tony Blair joins a strange and exclusive club of political leaders whose careers have been blighted by the Middle East

Blair has joined a strange and exclusive club

A new tomb has just gone up in the Middle East's graveyard of US and British political reputations, says Patrick Cockburn
Election 2015: Meet the top 12 wacky candidates seeking your vote in May

Election 2015

Meet the top 12 wacky candidates seeking your vote in May
Countdown to the election: Operation Save Danny Alexander shifts into high gear as the SNP target his Commons seat

Operation Save Danny Alexander shifts into high gear

The Chief Secretary to the Treasury didn’t forget his Highland roots in the Budget. But the SNP is after his Commons seat
The US economy is under threat because of its neglected infrastructure

The US is getting frayed at the edges

Public spending on infrastructure is only half of Europe’s, and some say the nation’s very prosperity is threatened, says Rupert Cornwell
Mad Men final episodes: Museum exhibition just part of the hoopla greeting end of 1960s-set TV hit

New Yorkers raise a glass to Mad Men

A museum exhibition is just part of the hoopla greeting the final run of the 1960s-set TV hit
Land speed record: British-built hybrid rocket car aims to be the fastest on Earth

British-built hybrid rocket car aims to be the fastest on Earth

Bloodhound SSC will attempt to set a new standard in South Africa's Kalahari desert
Housebuilders go back to basics by using traditional methods and materials

Housebuilders go back to basics - throwing mud at the wall until it sticks

Traditional materials are ticking all the construction boxes: they are cheap, green – and anyone can use them
Daniel Brühl: 'When you have success abroad, you become a traitor. Envy is very German'

Daniel Brühl: 'Envy is very German'

He's got stick for his golden acting career and for his beloved restaurant - but Daniel Brühl is staying put in Berlin (where at least the grannies love him)
How Leica transformed photography for ever: Celebrating 100 years of the famous camera

Celebrating 100 years of Leica

A new book reveals how this elegant, lightweight box of tricks would transform the way we saw life on the street and in fashion, on the battlefield and across the world