UK interest rates to lag behind Europe

28 July, 2011


The Pound fell last week against most major currencies, as news reached the markets that the new Bank of England MPC member, Ben Broadbent, voted against a UK interest rate rise this month. His predecessor Andrew Sentance had been voting for a rate rise for some time, but the prospect now seems further away and as a result we are not expecting a UK interest rate rise this year. With European interest rates likely to go up next week and further in the coming months, investors are more likely to hold Euros than sterling (for a better return on their funds), so the cost of Euros tends to go up according to this demand. As we near the end of June, a quiet week ahead for economic data, with the notable exception of UK GDP released tomorrow morning at 9.30am. This is the final revision of economic growth in the first quarter of 2011, and one of the main measures which can influence markets’ views on the UK economy – therefore any revision to the previous figures is likely to have an immediate impact on sterling. We also have the ongoing Greek crisis with votes due on austerity measures, and the prospect of UK strikes later in the week unlikely to help the Pound’s cause either. Data releases this week: Monday 27th 1330 – US personal income & expenditure Tuesday 28th 0930 – UK GDP & business investment 1500 – US consumer confidence Wednesday 29th 0930 – UK mortgage approvals 1000 – Eurozone consumer confidence 1200 – Canadian CPI inflation Overnight – UK consumer confidence Thursday 30th 0700 – German retail sales 0855 – German unemployment 1000 – Eurozone CPI inflation 1330 – Canadian GDP Friday 1st 1500 – US construction spending