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Sterling hovers at historic low against the euro

In what many believe will form the basis of the future push for Britain to join the euro, the divergence in the currencies has never been more evident than today. The 1% reduction in Bank of England base rates has seen sterling come under serious pressure and fall to near record lows against the euro in particular. So what next for the embattled UK currency?

The problem with the UK currency is the fact that further interest rate reductions seem inevitable in due course and with some analysts even predicting a 0% interest rate in the short term there is little reason to buy sterling. UK base rates are currently at levels not seen since the 1930s and there is little in the short term to suggest that sterling will strengthen against any of the major currencies of the world.

Even though this will assist in exports from the UK it will severely push up the cost of imports and with many items and services imported into the UK from overseas the potential for an increase in inflation is there. The situation for the UK economy is dire of the moment and there is little news on the horizon to suggest any form of pickup in the short term.

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