Bank of England interest rate decision due today

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Sterling got off to a good start yesterday as the trade deficit shrank to £7.1 billion in January, narrowing by £2.6 billion from the record high of £9.7 billion in December. The news enabled Sterling to gain ground against most of the major currencies in early trading yesterday as the decline in the deficit was larger than expected, reflecting a surge in exports which reached a record high.

UK shop prices rose at a faster pace of 2.7% year-on-year in February, up from 2.5% in January, contributing to higher inflation as the higher VAT rate was passed on to consumers.

The Euro has had a poor 24 hours; firstly Portugal managed to raise €6.1 billion with a bond auction but had to pay interest at a rate of 6%, rate described by Treasury secretary Carlos Pina as "not sustainable in the longer term". Secondly, Germany's trade surplus was lower than expected this morning and Moody's has downgraded Spain's sovereign debt to a rating of AA2. The Euro faces another Spanish threat later today when the central bank is expected to reveal which of the country's banks fail to meet government capital ratio targets.

Overnight, the Reserve Bank of New Zealand cut interest rates by 0.5% in a move designed to reduce the impact of the Christchurch earthquake. The accompanying statement noted that current policy would be removed when the rebuilding starts, but that this will take some time to begin in earnest. The New Zealand Dollar fell sharply on the announcements but has regained most of the lost ground as the UK markets open this morning. Looking ahead though, it is hard to imagine what will attract buyers to the NZ Dollar given the distressed state of the NZ economy following the earthquake.

Across the Tasman, Australian employment in February fell by 10,100 against an expected increase of 20,000. The overall employment rate actually rose by 47,600 to leave the unemployment rate at 5.0%.

In London, the UK market has one thing on it's mind today, the Bank of England's Monetary Policy Committee interest rate decision at midday. Before the MPC decision we have UK industrial production figures for January, with the markets expecting a strong return of 0.4% month on month.

With regards to the MPC decision, it is expected that Andrew Sentance, Martin Weale and Spencer Dale will again vote for a rate increase however, we won't learn the voting split until March 23rd. Despite this a no change decision could see a small sell off in Sterling against the majors.