ECONOMIC DATA ANALYSIS BY LLOYDS TSB

Sterling markets have been whipsawed over the past week by rising speculation of a near-term rise in UK interest rates. Although there was some relief that annual CPI inflation rose to ‘just’ 4% in January, that relief was quickly dispelled by comments from the BoE Governor in his open letter to the Chancellor.

COUNTING THE MINUTES

Sterling markets have been whipsawed over the past week by rising speculation of a near-term rise in UK interest rates. Although there was some relief that annual CPI inflation rose to ‘just’ 4% in January, that relief was quickly dispelled by comments from the BoE Governor in his open letter to the Chancellor. Traders seized on those comments as an implicit acknowledgement that the MPC was getting ready to raise interest rates. Although the Governor appeared to go out of his way to play down this interpretation when he presented last week’s Inflation Report, the profile of the Bank’s revised inflation forecast suggests the risks of a near-term rate rise have clearly shifted. The strong, albeit weather-distorted, bounce in January retail sales on Friday has done nothing to change this view. Against this backdrop, markets will watch domestic developments closely this week, including second estimates of Q4 GDP. But given the intensity of the UK rate debate, the minutes to February’s MPC meeting will be the key focus.

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