Sterling strengthens on fears of rate rise

THE RECENT spate of weakness in sterling appeared to be drawing to an end yesterday as growing City interest rate fears pushed the pound above DM2.90.

Hawkish comments from a member of the Bank of England's Monetary Policy Committee (MPC) coupled with a perceived weakening of the CBI's "the next move should be down" stance on rates re-awakened fears of an interest rate hike following next week's MPC meeting.

After a weak start, the pound gained almost a pfennig against the mark following a speech by Mervyn King, the Bank's chief economist and executive director, at the Building Societies annual conference.

Sterling finished the day at DM2.905, up from 2.898 on Tuesday.

Mr King, a "hawk" who voted for a rate rise at April's MPC meeting, said domestically generated inflation was "significantly higher than RPIX inflation [the measure of inflation targeted by the Government]". Mr King warned: "Inflation will start to rise above the target unless domestically generated inflation declines".

He added: "The earnings figures released earlier this month - which showed that average earnings in the economy grew by 4.9 per cent and in the private sector by no less than 5.6 per cent - were undoubtedly disappointing. To hit the inflation target those rates of earnings growth will have to fall back."

Mr King said that even though the MPC predicted a slowdown in the economy, it might not be sufficient in itself to hold back inflation.

Meanwhile, the Confederation of British Industry (CBI) indicated a slight softening over its stance on interest rates by warning that the country could not afford to trade "short-term gain for long-term pain".

Addressing the organisation's annual dinner in London last night, the CBI president Sir Colin Marshall called on the Government not to ease up in the fight against inflation.

He also gave a rare acknowledgement that the strong pound, while hurting manufacturers, exporters and inward investors, was also good news for importers, retailers and holidaymakers.

Speaking after the Prime Minister, Tony Blair, had addressed the dinner, Sir Colin said the CBI had been encouraged by the way the Government had seen eye to eye on the need for stability, sustainability and economic development.

But he added: "Central to our largely mutual philosophy is the need to combat and control inflation, ahead of almost all other economic considerations. "We simply cannot afford to trade short term gain for long-term pain."

Despite yesterday's developments, most City economists still believe the outcome will be "no change" after next week's two-day MPC meeting, which will start on Wednesday.

Start your day with The Independent, sign up for daily news emails
Sport
sportWWE latest including Sting vs Triple H, Brock Lesnar vs Roman Reigns and The Undertaker vs Bray Wyatt
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
ebooks
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
and  

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

How to make your own Easter egg

Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

Bill Granger's twist on Easter Sunday lunch

Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
Joe Marler: 'It's the way I think the game should be played'

Joe Marler: 'It's the way I think the game should be played'

The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

Cricket World Cup 2015

Has the success of the tournament spelt the end for Test matches?
The Last Word: Justin Gatlin knows the price of everything, the value of nothing

Michael Calvin's Last Word

Justin Gatlin knows the price of everything, the value of nothing