Currency news - Sterling volatility to continue

Sterling volatility to continue - 03-12-07

There will be further uncertainty over the Bank of England rate decision this week. Money-market stresses continued on Friday as 3-month rates rose to above 6.60%. This increase has continued to effectively tighten policy which will reinforce pressure for official rates to be reduced to compensate.

Wider expectations of economic deterioration will also tend to increase pressure for interest rates to be cut with media reports of a sharp economic slowdown over the weekend while there have been increased calls for rates to be cut. The shadow MPC which is made of up academic economists voted 5-4 for a rate reduction this month, illustrating the current divisions over policy. It is also important to note that divisions over economic trends appear to be increasing.

The PMI index for manufacturing rose to 54.4 in November from 52.9 which will provide some near-term relief over the industrial sector, although financial and credit-market considerations are liable to dominate.

Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001

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