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Where will sterling go in the short term?

Over the last few days it has become apparent that the Bank of England is becoming more and more downbeat regarding the UK economy and potential challenges in the short to medium term. Indeed Mervyn King has even floated the idea of reintroducing quantitative easing in the short to medium term if the problems within the Eurozone impact upon the UK economy and overseas trade.

While sterling was very weak early this week it has picked up today although many believe this to be nothing but a short term recovery from possibly an oversold position. It will be interesting to see how and when the Bank of England and the UK government step in to support the currency although the lower sterling falls the more competitive exports become, something which could ignite a future recovery in the UK economy.

In many ways the UK economy has struggled to keep up with European and worldwide counterparts with the 0.1% increase in gross domestic product in the final quarter of 2009 even under threat of a downwards revision. A further bout of economic pressure around the world could push the UK into a steep and damaging decline which would undo the work done by Gordon Brown and the Labour government over the last two years.

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