Ster­ling soars on fresh rate rise hopes

The Daily Telegraph - Business - - Business - TOM REES MAR­KET RE­PORT

RE­NEWED hopes that Bank of Eng­land pol­i­cy­mak­ers will be tempted to raise in­ter­est rates sooner than ex­pected to curb the heady ef­fects of in­fla­tion sent the pound soar­ing to a one-year high against the dol­lar.

The higher-than-ex­pected jump in in­fla­tion to 2.9pc rein­vig­o­rated mone­tary pol­icy hawks and boosted ster­ling above $1.3280 against the green­back to its best level since last Septem­ber, just be­fore the pound be­gan a slide that bot­tomed out at just be­low $1.21 in Jan­uary.

In­vestors still an­tic­i­pate no change in the BoE’s next mone­tary pol­icy meet­ing to­mor­row but fur­ther ev­i­dence of the tight­en­ing squeeze on UK house­holds and CPI rac­ing far ahead of the cen­tral bank’s own 2pc tar­get now mean that the mar­kets are putting the chance of a hike be­fore the end of the year at close to a coin flip.

An­a­lysts com­mented that the pick-up could be enough to per­suade the BoE’s chief econ­o­mist Andy Hal­dane, who sig­nalled ear­lier in the sum­mer that he may vote to in­crease in­ter­est rates from 0.25pc, to jump ship to the hawks. “The risks of a 6-3 vote at the next mone­tary pol­icy meet­ing have risen ma­te­ri­ally on the back of this num­ber, as Andy Hal­dane has been pretty ex­plicit on his dis­com­fort with present lev­els of in­fla­tion, even if they are due to cur­rency weak­ness and im­ports,” said Ben Lord, man­ager of the M&G UK In­fla­tion Linked Cor­po­rate Fund.

Against a bas­ket of lead­ing global cur­ren­cies, how­ever, the pound’s 0.9pc jump could only take it to its best level in a month, high­light­ing the dol­lar’s own de­cline of late. Blue-chip ex­porters faced an up­hill strug­gle in Lon­don against a resur­gent pound with the over­all FTSE 100 clos­ing 12.90 points lower at 7,400.69.

Costa Cof­fee owner Whit­bread pared heavy early losses to nudge down only 15p to £37.61 af­ter Citi “de­bunked” the UK cof­fee growth myth, dou­ble-down­grad­ing the stock to “sell” from “buy”. Just four to five years of struc­tural growth re­main in the branded UK cof­fee mar­ket and Costa stores are fac­ing very high lev­els of com­pe­ti­tion, Citi told clients.

House­builders re­treated across the board af­ter Redrow chair­man Steve Mor­gan stoked fears that the sec­tor had reached its peak by sell­ing a large stake in the com­pany, pulling it down 52.5p to 580p. An­a­lysts were quick to high­light that fac­tors un­der­pin­ning re­cent growth look ready to con­tinue but the sale com­ing just days af­ter Berke­ley di­rec­tors also cashed in prompted jit­tery in­vestors to dump house­builders with Bar­ratt De­vel­op­ments sink­ing 10p to 596p and Per­sim­mon drop­ping 52p to £25.03. Pre­cious metal pro­duc­ers Fres­nillo and Rand­gold Re­sources sank 37p to £15.70 and 235p to £77.65 as the con­tin­ued re­bound of risk ap­petite pulled down gold prices.

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