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Will base rates come to the rescue of sterling?

While historically sterling has moved in tandem with UK base rates and the outlook for the UK economy, there are concerns that the option to increase base rates in the short, medium and longer term may not be enough to defend the UK currency. More and more emphasis is now being put upon the state of the UK finances and the fact that the UK government has as yet been unable to issue a detailed plan of action to reduce the ever-growing budget deficit.

Even though the Bank of England is expected to increase UK base rates in 2010 it will take more positive action on the UK budget deficit before overseas and domestic investors will take more of an interest in sterling. While many may not necessarily follow the UK exchange rate it is vital to the U.K.'s import and export industry and can have a massive impact on profitability and the cost of goods acquired in UK.

More and more it is becoming obvious that the ongoing recession is like nothing seen in the recent past and it will not be forgotten in a hurry! It began with the credit crunch in the US which quickly seeped into the money markets, investment markets and economies around the world.

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