Sterling soars on fresh rate rise hopes
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.