Sterling rises to 88.5p against euro
Published 16/01/2010 | 05:00
STERLING rose to 88.5p against the euro, bringing its gain this week to almost 2pc, on speculation the Bank of England will allow its bond-buying programme to expire as the economic recovery takes hold.
A report next week may show inflation accelerated to 2.5pc; going past the central bank's 2pc target for the first time in seven months, according to a Bloomberg survey. This is a four percentage point difference from the 1.7pc deflation in Ireland, where prices have fallen partly as a result of sterling weakness.
A spokesman for prime minister Gordon Brown said yesterday that Mr Brown and his finance minister, Alistair Darling, are confident the UK resumed growth at the end of last year.
The Bank of England has cut interest rates to a record low of 0.5pc and is buying £200bn of bonds from banks to keep borrowing costs depressed and promote growth.
The central bank will complete the final £25bn of its programme by February 4.
"People are starting to come to the realisation that 'quantitative easing' has come to the end of the road, and that's providing the pound with traction," said Jeremy Stretch, a senior currency strategist at Rabobank International.
The Bank's Monetary Policy Committee has to consider raising rates as "there are global influences such as oil and commodity prices and the impact of the exchange rate, which can lead to speed limits for the rate of growth," the 'Guardian' newspaper quoted MPC member Andrew Sentance as saying in an interview published on Wednesday.
The euro has also been weakening over concerns about the Greek budget deficit, falling the most in almost a month against the dollar yesterday to $1.4376.
This may bring some relief to exporters, as new figures showed euro area exports declined for a second month in November as the currency's strength made goods more expensive abroad.