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The Bank Says No, The Markets Say Yes

The next few months will see the development of a very interesting tussle between the Bank of England and the currency markets where Sterling has been pushed to a 22 month low against the dollar. It seems as though the Bank of England's negative outlook for inflation has spooked the markets although many are now starting to price in an interest rate cut to try and revive the economy.

As we have covered on a number occasions the Bank seem intent on keeping rates where they are at the moment (even though they would like to move them higher to combat inflation) so on the surface there seems little chance of a rate cut in the short term. However, the markets are trying to force the hand of the authorities as fears about the future direction of the UK economy begin to hit home and the likelihood of a recession is upper most in many minds.

Whether the Bank is forced to give the markets what they want or able to navigate its own path through these troubled waters remains to be seen but the markets are not often wrong - even in the face of the mighty Bank of England!

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