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Sterling holds above $1.36 as GDP data leaves rate rise bets unchanged

Wednesday,   13-Oct-2021   02:22 PM (IST)

Sterling edged higher on Wednesday as traders assessed that data showing the British economy grew slightly below consensus in August was not enough to dent expectations the Bank of England (BoE) will increase rates. Britain’s economy grew 0.4% in August, leaving it just 0.8% smaller than it was in February 2020, the Office for National Statistics said. Economists polled by Reuters had forecast monthly gross domestic product growth of 0.5% for August. Economic data this week, including UK jobs figures for September that came in largely in line with forecasts, “gave no reasons for markets to scale back their aggressive pricing for Bank of England tightening”, ING told clients in a note. The BoE, facing a jump in inflation, looks set to be the first major central bank to raise interest rates since the beginning of the pandemic. Investors are betting on a rise to 0.15% by December. The pound hit a two-week high of $1.3674 against the dollar on Monday after BoE governor Andrew Bailey stressed the need to prevent inflation from becoming permanently embedded, and fellow policymaker Michael Saunders said households must brace for “significantly earlier” interest rate rises. At 0825 GMT, sterling rose 0.3% versus the dollar to $1.3635. Against the euro, it edged 0.1% higher at 84.75, not far from a two-month high touched this week. But some analysts have pointed out that sterling had failed to react to renewed post-Brexit disputes over the Northern Irish protocol, which governs trade in the province. British Brexit minister David Frost told the EU on Tuesday that significant changes to post-Brexit rules were the only option to draw the poison from their relations. The European Commission will later in the day put to Britain a package of measures to ease the transit of goods to Northern Ireland.