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The Bank of England's big struggle
Following a sharp fall in the headline measure of inflation to an annual rate of 2.2 percent in October from 2.7 percent the previous month, investors now await the Bank of England's latest quarterly inflation report, out on Wednesday.
The central bank has made it clear it would not consider raising interest rates from their current 0.5 percent until the jobless rate falls to 7 percent.
Saxo Bank’s Nick Beecroft says: “TThe BoE is going to want to try and walk quiet a fine line between acknowledging the fact that the economy is recovering and the fact that they want the market to see interest rate rises as being very distant in time."
Sterling, which has had a strong run over the past few week, has now dropped back a bit ahead of the report. Nick explains investors are simply expecting these increases in growth forecasts and decreases in the unemployment forecast - which are good for Sterling.
But he adds: "If anything there’s a little negative disappointment waiting in the wings on Wednesday if the Bank of England isn't quiet so optimistic on the prospects."
Speaking about Mark Carney’s policy of "forward guidance", Nick says: "I think he’s going to have a struggle to maintain a belief in the markets that rates are not going to rise until 2016.
Last week the European Central Bank surprised investors by cutting interest rates further in the face of stalling economic growth in the eurozone and deflation concerns.
01:52 minutes
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