Bank of England set to raise UK rates
Britain posted a monthly inflation figure of 3% yesterday, well above Bank of England targets and the highest it has been since April 2012. That data - along with strong hints from the Bank of England Governor Mark Carney - set the scene for a rate rise in the country in November. But that was until his deputy governor Dave Ramsden said that he saw no need for such a move in the coming months. That led to a slight dip in the value of sterling, as markets pulled back from their assumption that rates would rise in November.
John Mattimoe, senior fund manager at Appian Asset Management, said an upward move for UK interest rates remained on the cards. "We have had mixed signals from parties in the Bank of England but the way we see it is there is a clear majority in favour of a rate rise and the question is when it's going to be," he said. "Inflation is clearly 1% above their target level and one of the members of the committee over there has said it's at a tipping point, which points to a rate rise," Mr Mattimoe said.
That increase may come on November 1 - when the Bank of England's monetary policy committee is next scheduled to make an announcement - or it could be pushed back into December. Regardless of the timing, Mr Mattimoe is confident a rise is coming soon. "For the Bank of England it's really a balancing act," he said. "On the one side they've to worry about the rising inflation figure and then on the other side they've to worry about the underlying economy, which is now being weighed down by uncertainty ahead of Brexit."
The timing of the rate rise could have big implications for the euro-sterling exchange rate. Sterling had strengthened following the suggestion that a rate rise was coming but eased back yesterday as cold water was poured on that. John Mattimoe said he feels we should see less extreme volatility in the months ahead. "I think sterling is probably in a narrower range than it has been," he said. "Yesterday we saw a move of about 0.7% against the dollar and that really only brings it back to where it was last week; it's not like the gyrations we've had."
The Bank of England is not the only central bank with an important meeting on the horizon as next Thursday the European Central Bank will meet to discuss the future of its quantitative easing programme. Following that Mario Draghi is expected to give guidance on what its future plans are for its bond buying programme, and Mr Mattimoe said that markets will be looking for clarity above all else. "The rate of growth [in the euro zone] is still relatively modest but it's much better than it has been, so the need for the ECB to have the economy on life support is lessening," he said. "I think what the market is looking for there is a clear signal from the ECB as how they're looking to take the economy off life support and over what time frame they're looking to do that," he added.
MORNING BRIEFS - Revenue at IBM fell by just 0.4% in the third quarter of this year, beating analyst expectations and setting the foundations for the company's first sales rise in almost six years. The US technology company has enjoyed strong growth at its cloud computing, cyber security and analytics businesses, which are now its main focus instead of personal computing. It has forecast a sales rise of as much as 1.4% in the fourth quarter.
*** British airline Flybe has revised down its profit forecast for the first half of the year as a result of a review of its aircraft maintenance strategy. The airline, which operates flights from Belfast, Cork, Dublin and Knock - now anticipates profit before tax of £5-10m, compared to almost £16m a year ago.
*** Boeing has claimed that Bombardier's CSeries jets could still be hit with high US import duties, despite Airbus taking a majority stake in the project. US Commerce Department has threatened to impose a 300% import duties on the C Series, part of which is manufactured in Belfast. However it was hoped that that could be avoided after Airbus and Bombardier yesterday announced a partnership to develop the jet.
*** Consumer products business Reckitt Benckiser has announced a 1% fall in revenues during its third quarter to £3.2 billion. The maker of products like Nurofen and Dettol has also announced plans to reorganise its business into two units - one for health and the other for hygiene and home products.