After initially falling, sterling recovered almost across the board yesterday after the Bank of England (BoE) opted to raise interest rates by the lower of the likely degrees, 25 basis points rather than 50.
However, this still raised interest rates to 5.25%, their highest for 15 years, and the Bank also warned that they would stay high, despite falling inflation. BoE governor Andrew Bailey said: “to get inflation back to target, we are going to have to keep this stance of policy.”
There were demonstrations in Threadneedle Street at the effect on households, while the thinktank the IPPR complained that the Bank was “overdoing it”. However, the chancellor Jeremy Hunt was supportive of the rise.
While this means the government potentially going into an election with rates still high, prime minister Rishi Sunak may derive comfort from the Bank also saying that inflation should half by the end of the year, fulfilling one of his 2023 pledges.
On the data front yesterday, final results for July’s PMI results came in largely as expected. The eurozone’s services PMI was marginally downgraded, but still remains positive at 50.9.
Germany’s balance of trade in June stood at its highest since the start of 2021, as imports declined by 3.4%. There has been light at the end of the tunnel for German businesses this morning, with factory orders rising unexpectedly by 7% between May and June. Over the past three months factory orders have risen at their fastest since June 2020.
In business news, retail behemoths Amazon and Apple both recorded strong growth, with Amazon predicting third quarter sales 9-13% above last year, and Apple recording record growth in service sales (even though iPhone sales fell).
In the week that much of Europe departs for les grandes vacances, the FT reports that hedge funds have lost $6bn short selling Airbnb and US cruise lines Carnival and Royal Caribbean. The global public continued to spend on their holidays, confounding efforts to profit from their demise. It was also revealed that the jump in France’s last quarterly GDP was largely caused by the sale of one new cruise ship, the 331-metre-long MSC Euribia, for €1 billion from its yard in Saint-Nazaire.
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