To raise or not to raise - that is the dilemma facing the Bank of England as it decides on interest rates today. Pressure is intensifying to hike after figures during the week pointed to inflation in the UK running at around 3%.
Paul Sommerville, of Sommerville Advisory Markets, explained that the rise in UK consumer figures was not the kind of inflation that comes from a rapidly growing economy. Instead, it is as a result of a falling pound which has made imports more expensive, thus putting the squeeze on British consumers. "Mr Carney has some dilemmas here. The jobless rate in the UK is at a 42 year low. Inflation is a little bit racy. Under normal circumstances, you'd expect a rate increase, but he's still worried about the Brexit effects in 2018. It's looking more likely now that he'll have to put up rates, but he'll probably wait until early next year."
Sterling has risen as traders anticipate a rate rise and some analysts expect further increases. But much of the effect of the anticipated rate rise has already been priced in. "Sterling has gone from 93 pence to the euro, which is nosebleed territory for exporters, to below 90 pence. I wouldn't be surprised to see it go further. Much of it depends on what other Central Banks do. The euro has been especially strong for the last six months. Sterling is actually doing ok against the dollar. It hit a one year high against the dollar yesterday. It's the euro that's very strong, the dollar is weak and sterling is caught in between the two," he explained.
Paul Sommerville expects some weakness to creep into the euro in the coming months after a period of rapid gains. "At the start of the year, most people thought the dollar would be strong and the euro weak this year. We disagreed. But now we think the euro at $1.21 is a bit too high. We wouldn't be surprised to see the euro go lower. It really depends on Mario Draghi and what he does on QE. He doesn't like to see the euro at these levels as it's harmful for the European economy. I wouldn't be surprised to see him talk it down," he concluded.
MORNING BRIEFS - Apple is reported to have told the authorities here that continuing delays around its proposed data centre in Galway could put the $1 billion project in jeopardy, according to the Bloomberg newsagency. Apple announced plans to build the 166,000 square metre centre near Athenry in 2015 and it had expected to have it built by this year. Instead it is awaiting the outcome of a court hearing into a challenge by objectors to the planning approval for the project. Apple has almost completed a similar project in Denmark announced at the same time and now it is planning a second data centre there.
*** The value of the crypto currency Bitcoin dropped to its lowest level in three weeks yesterday after the head of JP Morgan joined others in expressing scepticism about the surge in recent times. Jamie Dimon went as far as calling the currency a fraud that would be mostly useful if you were in North Korea. The currency fell back by around 5.5% to around $3,950 - the first time it has been below $4,000 since late August - it went close to $5,000 in early September. The value of Bitcoin has surged since the start of the year when one was worth $960.