Bank of England and European Central Bank meetings today

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Yesterday's UK industrial production data was expected to provide a boost to the UK economy following the poor services PMI data but it failed to deliver. Expectations were for +0.2% in July but it came out at at -0.2%, worse than the flat number in June. UK shop prices also fell but only marginally from 2.8% in July to 2.7% in August.

Whilst the focus in the Eurozone was on debt bonds and restructuring (more of that in a minute) there was some positive news from Germany, with a rebound in industrial production to 4.0% in July following a decline of -1.0% in June. A combination of the UK and German data saw Sterling lose out against the Euro, down over half a cent on the day.

Elsewhere in the Eurozone, Chancellor Merkel said the Eurozone crisis cannot be solved with debt restructuring or Euro bonds but a fundamental rethink of how debt has been built up. If only the likes of Greece and Ireland had considered this 3 years ago. The Dutch Government has come up with a new way to sort out the Euro; appoint a new EU commissioner for budgetary discipline. 

All this speculation seems to confirm is that no-one really knows how to solve the problems. 

Today Sterling could have a difficult day with the Bank of England monetary policy committee set to announce is decision on interest rates. Whilst investors are convinced interest will remain at 0.5% for a the third year, doubts surround whether or not the MPC will embark on a second round of quantitative easing. Until now only one member has voted for further QE; any additional members voting for another £50 billion of QE could damage Sterling's value. 

In the Eurozone, the ECB has been fostering expectations that it will raise interest rates higher following increases in April and July. A month ago it seemed like another increase was in the pipeline when Jean-Claude Trichet said he would "monitor very closely" upward pressure on inflation. 

The latest Eurozone inflation figure was 2.5%, above its 2% target, so in theory the ECB will still be looking to raise interest rates. Since last months ECB meeting sluggish growth will lead to a fall in inflation so there is no need to take interest rates beyond its current 1.5% level. The statement therefore will be all important with investors listening for any subtle change in language - if there is a mention of current interest rates being "appropriate" it will signal a change in sentiment and could see to the Euro fade.