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Sterling hits 25-year high

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19/04/2007

With an interest rate rise firmly on the cards for May, Sterling soared yesterday to its highest level against the US dollar since 1982.

Figures released by the Office for National Statistics showed the steepest UK pay increases for two years at 4.6% year-on-year, indicating previously unsuspected inflationary pressure.

The pound thundered up to $2.0131 on the news, with many traders expecting Sterling to reach up to $2.06 today.

Looking further ahead, some experts believe further interest rate rises in the pipeline could mean the pound reaching up to $2.10 this year.

“We have got our sights set on $2.10,” said David Brown, economist at Bear Stearns. “There may be ups and downs but given the prospects for UK interest rates and the outlook for the dollar this has $2.10 written all over it.”
 
The minutes of the Bank of England’s Monetary Policy Committee, the body that sets interest rates, were also published yesterday. They revealed that the Bank was not expecting this month’s headline inflation figure of 3.1%, when they voted to maintain the Base Rate at 5.25% in April, although there was a three-way split among the members of the committee.
 
Of the nine members, two voted for a rise, seven to hold rates for at least a month, and one questioned whether an increase would be needed at all.
 
Despite the Bank of England’s forecast that inflation will drop off later this year, many analysts predict rise in interest rates next month of at least 0.25%, with some even suggesting a 0.5% increase would be in order.

 

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