Currency Note Sterling

UK interest rates to be kept on hold

By Ricky Bean August 8th, 2013

Sterling strengthened yesterday, going against market expectations in the wake of comments from the new Governor of the Bank of England. As was widely expect the Governor provided forward guidance with regards to the future interest rates of the country causing sterling to drop initially. He stated that interest rates would not be raised until unemployment dropped below 7%, however, sterling then surged – reaching six week highs against the US dollar (moving over 3 cents through the course of the day), and four week highs versus the euro – after it was revealed that this condition would be removed if inflation stayed above 2.5% for another 18-24 months. The market reactions suggests that investors feel that the new Governor did not go nearly as far with regards to forward guidance as his reputation suggests he would. In line with these revelations, a number of the major banks revised their predictions on when we will see the first rise in interest rates. An increase in the growth forecast also contributed to sterling’s good performance, with the Bank of England raising its forecasts to 1.4% (from 1.2%) and 2.5% (from 1.7%) for 2013 and 2014 respectively. The rest of the week holds little of note with regards to further economic data from the UK, and rates will gain direction from further reaction to yesterday’s influential revelations. Call your trader now to get the up to date price on sterling.