Interest rates set to remain on hold
While the Bank of England often has a unique style of conveying its thoughts to the market, director Paul Tucker seems to be a little more forceful. He has come out to suggest that the Bank of England MPC (of which he is a member) will not be looking to reduce interest rates in the immediate future as inflation is still on 'amber'. His comments were gratefully accepted by the currency markets and saw a sharp spike in the sterling rate against the dollar.
However, Mr Tucker also went onto suggest that while the surge behind inflation may be weakening the growth figures for the UK economy have been a lot lower than many had expected. This offers an interesting hedge, the need to reduce rates to kick start the economy against the need for rates to remain steady until inflation is killed off.
While the currency markets have breathed a sigh of relief with rates expected to remain on hold in the short term, the medium and longer term direction of interest rates is almost certain to be lower. This will see the currency again come under attack in due course and increase the cost of imports into the UK from the US.
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