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Pound strengthens as Carney revamps rates pledge

(UPDATE) Share markets remain higher, with FTSE 100 heading for sixth consecutive day of gains.

 
Pound strengthens as Carney revamps rates pledge

(UPDATE) The pound leapt as a shift in the Bank of England’s ‘forward guidance’ plans for interest rates left financial markets questioning how long rates would remain at rock-bottom.

UK unemployment will probably have hit the Bank’s 7% guidance threshold for raising rates this spring, but low productivity is likely to delay tighter policy, said governor Mark Carney as he attempted to convince consumers, businesses and markets that interest rates would remain at 0.5% until the recovery is sustainable.

In its Inflation Report, the bank pointed out that ‘robust’ economic growth had not yet begun to erase the UK’s economic productivity gap.

Having seen its attempts to steer rate expectations derailed by unexpected growth, the Bank refrained from providing specific numerical signposts for a rate rise. Carney instead outlined a range of measures that would be monitored.

James Knightley, an economist at ING Bank, said ‘the strength of the growth story coupled with the robustness of the labour market means that the BoE are likely fighting a losing battle in convincing markets that rate hikes are a distant prospect.’

The pound, flat before Carney spoke, was trading 0.5% higher at $1.6536. Share markets meanwhile remained positive (FTSE 100 up 0.2% at 6,685).

Fed ‘continuity’, China trade sustains FTSE winning streak (08:15)

Confirmation that the new chief of the US Federal Reserve won’t fiddle with existing stimulus policy, coupled with signs of improvement in China’s economy, helped global stocks higher, with London’s benchmark FTSE 100 heading for its sixth consecutive day of gains.

Although new Fed chair Janet Yellen confirmed to US Congress that the steady reduction of US asset purchases would continue, gradually removing the stimulus that markets crave, she provided the next best thing for investors: certainty.

The result of Yellen’s expectations of ‘continuity’ in monetary policy, ‘likely’ reducing the pace of asset purchases at each of the Fed’s policy meetings as it started to do in December, was a rally on Wall Street, followed higher by Asia overnight and Europe this morning. Britain’s FTSE 100, which rose 1.2% on Tuesday, was up 0.2% to 6,686.

Capping blue chip gains were heavyweight energy companies BP (BP.L) and Shell (RDSb.L), which were both trading without their dividend appeal. Sage Group (SGE.L) was also trading ex-dividend.

China’s ‘rock-solid’ trade

It wasn’t just Yellen putting wind in European markets’ sails; an update on Chinese trade, showing growth in both exports and imports, helped counter concerns about the health of the country’s economy.

After a string of poor updates on China’s economy, markets welcomed a report showing exports grew 10.6% year on year in January, up from 4.3% in December. Imports grew by 10% from 8.3% in the previous month.

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3 comments so far. Why not have your say?

Jonathan

Feb 12, 2014 at 16:58

He's doing his job. Keeping the value of the pound high and still printing lots of money to finance the deficit.

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Alan Tonks

Feb 12, 2014 at 17:31

“Mark Carney as he attempted to convince consumers, businesses and markets that interest rates would remain at 0.5% until the recovery is sustainable.”

Well if that is the case we may have to wait until the next century.

I cannot understand why James Knightley would say ‘the strength of the growth story coupled with the robustness of the labour market”

Where is the strength and the growth and where is the robust labour market, Mr. Knightley?

I know you are working on Government statistics, as any true economist of today would.

Whereas people with a grain of common sense already know, government statistics are on the fantasy side or lies, whichever you prefer.

I suppose it doesn’t help an economist of today, to work for an ING Bank, because they would be the last people to know anythING.

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DEZ

Feb 13, 2014 at 22:07

So the new kid in town is using the moving target scam .... usual banking hype dangling a mouldy carrot to the rank 'n file. The Government will never allow their debt to suffer further increased interest payments that makes their own debt even larger. Far better the millions of loyal savers suffer crap interest rates than put the Government further in debt. Lies and more lies....so he has joined the boys ....should get him on some honours list in the near future for services rendered.

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