UK likely to raise interest rates- inflation to remain above 2 %

At Gerard Associates Ltd we continue our daily look at factors affecting markets and currencies allowing some insight into conditions affecting exchange rates.

Cash and income timing from a UK Pension or QROPS (Qualifying Recognised Overseas Pension Scheme) should be considered to maximise the Pension, QROPS and investment income taken.

Investment market volatility and currency exchange remains a challenge. The global economics are volatile and unprecedented in history. Currency exchange continues to concern expats with UK Pensions, QROPS and now QNUPS (Qualifying non UK Pension schemes).

Yesterday saw Sterling rally to a 13 month high $ 1.6328 after stronger than expected economic data indicated that the UK were likely to increase interest rates before the US.

Nationwide house prices figures saw a positive gain of 0.3% against the consensus figure –

0.2%. This helped Sterling to gain across the board early in the session. This was followed by UK PMI figures for February, which showed 61.5, a slightly lower figure than the 62.0 figure the previous month; however analysts had priced in a 61.0 figure.

The data helped to maintain strong demand for the pound as signs of an improving economy add to speculation the country has recovered enough to withstand a rise in interest rates.

The Markets are pricing in a 25 basis point increase as early as June and any information pointing towards this will certainly be positive for the pound.

“The Bank of England is going to hike rates before any of the other G4 central banks,” said a currency strategist at Barclays Capital, adding they expected the first rate rise in May.

Sterling traded fairly flat against the euro within a range between €1.1756 and €1.1816.

Support for the Euro came from demand from European reserve managers.

Bank of England Governor Mervyn King’s views on inflation are that they will remain above the 2.0% target this year, and also mentioned that price pressures are becoming difficult, meaning that they are not in a hurry to increase rates. Deputy Governor Charles Bean said he was more concerned that elevated inflation may last longer than first thought. Investors had been focusing on Bean’s comments as many in the market expect he will be the next Monetary Policy Committee member to vote for a rate rise.

“What King has said … is consistent with the Bank of England’s inflation report and the MPC minutes (released last month) … which essentially has set up the case that the Bank of England will be patient in hiking rates,” said a currency strategist at FXPro.

Gerard Associates Ltd advises expats and people considering living abroad on the technical and currency options available for Pensions, QROPS, QNUPS and investments in a clear format allowing all customers to make an informed choice. Our service encompasses Pension including QROPS and QNUPS and investments in a clear format allowing all customers to make an informed choice.

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