Mr Bean boosts Sterling with suggestion of UK interest rate rise

Bank of England deputy governor Charles Bean should take some responsibility for another solid performance by Sterling yesterday. A stronger UK construction purchasing managers' index (PMI) set the scene, rising by nearly four points in January to a positive 53.7

Mr Bean's contribution was to say in an interview that if inflation remains high "we may well have to respond to that by keeping domestically generated inflation lower". Backing up Mr Bean was his monetary policy committee (MPC) colleague Andrew Sentance, the notorious advocate for higher interest rates. In a separate interview he repeated his long-standing call for higher interest rates, saying "we need to be prepared to look through fluctuations in GDP growth when we're recovering from recession". The deputy governor's comments bring to three the number of MPC members leaning towards a rate increase. Two more and interest rates will rise to 0.75%.

The interest rate story was good for Sterling but did not take it far. It added half a US cent, half a Euro cent, half an Australian cent and half a Yen. Overnight it is up over three cents against the New Zealand dollar although that can be attributed to New Zealand unemployment rising from 6.4% to 6.8%.

It will be the services sector PMIs that decide the fate of currencies on the foreign currency exchange markets today. China has already announced a four point drop to 52.9. A month ago the UK figure was a big disappointment, dropping below the boombust barrier to 49.7.

Forecasts suggest it will be back up to 51.1, still behind the Eurozone (55.2) and the US (57.0). There is Eurozone retail sales today which are expected to be 0.6% higher in December.

At lunchtime the European Central Bank will reveal its latest decision on interest rates; no change is expected to the 1.0% refinancing rate.

Sterling will stand or fall by the services PMI. Sentiment in the last couple of days has been positive, suggesting that a good figure this morning could take the pound higher. It is not positive enough to withstand another sub-50 result though.