CURRENCIES

THE pound is expected to hold this year's 5 per cent gain against the euro this week on speculation that UK growth prospects are better than those of the euro 11 region.

"The outlook for the UK is improving more quickly than for continental Europe," said Ian Stewart, an economist at Merrill Lynch. He expects the Bank of England will cut the repurchase rate to 5.0 per cent by the middle of the year, from 5.5 per cent currently.

Bank of England policy makers have sliced 2 percentage points off the benchmark lending rate in the past six months, driving it down to 5.5 per cent, in a bid to keep the economy growing. The European Central Bank, meanwhile, opted to leave its refinancing rate at 3.0 per cent at each of its six meetings since the common currency was introduced.

On Friday, the pound rose to 0.6710 per euro from 0.6744 late Thursday. It was little changed against the dollar at $1.6267 from $1.6309. It has fallen 1.5 per cent against the US currency this year on the expectation that the interest rate differential between pound and dollar deposits would narrow.

Investors said the strength of the pound makes it more likely the Bank of England will cut rates further this year, since it hurts exporters by making their products more expensive. It also helps curb inflation by making imports cheaper.

Whisky exporters are feeling the strain. The Scotch Whisky Association said last week that exports slipped 15 per cent in 1998, because of the pound's strength and the slowdown in emerging market economies. "There is no surprise in these figures, nor complacency in the industry," said its, director-general, Hugh Morrison.

"The MPC will continue to ease because the economy is still in poor shape and the pound is too strong for industry," said Rod Davidson, at Murray Johnstone Asset Management. "We'll definitely see a quarter point, and maybe even a half point, off [rates] in April."

More clues on the state of the British economy and the outlook for rate cuts will come in reports on inflation and trade. Economists expect a report on Tuesday to show the Government's preferred measure of inflation - the rise in retail prices minus mortgage interest payments - rose 2.5 per cent in February, in line with the central bank's target.

A report on Thursday will probably show that the UK's trade gap with the rest of the world grew to pounds 2.6bn in January from pounds 2.2bn the previous month.

Sterling interest-rate futures contracts that settle in June suggest traders and investors anticipate three-month lending rates to fall to 5.08 per cent by then. That's far enough below current lending rates of 5.36 per cent to suggest expectations for a quarter-point cut by mid-year.

The Bank of England's rate-setting committee next meets on 7 and 8 April.

The dollar rose on Thursday and Friday against the euro on expectations that the ECB's policy of keeping rates unchanged is postponing an economic rebound in the euro-zone. "Europe is sitting on the sidelines", and that's hindering a rebound in the euro, said Laura Zimmerman, global bond strategist at Payden & Rygel in Los Angeles. "The ECB has the room to cut, it has the flexibility and inflation is low enough."

Start your day with The Independent, sign up for daily news emails
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Pricing Analyst

£30 - 35k: Guru Careers: We are seeking a Pricing Analyst to join a leading e-...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K YR1: SThree: At SThree, we like to be dif...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + competitive: SThree: Did you know? SThree is a mul...

Guru Careers: C# Project Team Lead

£55 - 65k (DOE): Guru Careers: A unique opportunity for a permanent C# Develop...

Day In a Page

Why the cost of parenting has become so expensive

Why the cost of parenting has become so expensive

Today's pre-school child costs £35,000, according to Aviva. And that's but the tip of an iceberg, says DJ Taylor
Fifa corruption: The 161-page dossier that exposes the organisation's dark heart

The 161-page dossier that exposes Fifa's dark heart

How did a group of corrupt officials turn football’s governing body into what was, in essence, a criminal enterprise? Chris Green and David Connett reveal all
Mediterranean migrant crisis: 'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves,' says Tripoli PM

Exclusive interview with Tripoli PM Khalifa al-Ghweil

'If Europe thinks bombing boats will stop smuggling, it will not. We will defend ourselves'
Raymond Chandler's Los Angeles: How the author foretold the Californian water crisis

Raymond Chandler's Los Angeles

How the author foretold the Californian water crisis
Chinese artist who posted funny image of President Xi Jinping facing five years in prison as authorities crackdown on dissent in the arts

Art attack

Chinese artist who posted funny image of President Xi Jinping facing five years in prison
Marc Jacobs is putting Cher in the limelight as the face of his latest campaign

Cher is the new face of Marc Jacobs

Alexander Fury explains why designers are turning to august stars to front their lines
Parents of six-year-old who beat leukaemia plan to climb Ben Nevis for cancer charity

'I'm climbing Ben Nevis for my daughter'

Karen Attwood's young daughter Yasmin beat cancer. Now her family is about to take on a new challenge - scaling Ben Nevis to help other children
10 best wedding gift ideas

It's that time of year again... 10 best wedding gift ideas

Forget that fancy toaster, we've gone off-list to find memorable gifts that will last a lifetime
Paul Scholes column: With the Premier League over for another year, here are my end of season awards

Paul Scholes column

With the Premier League over for another year, here are my end of season awards
Heysel disaster 30th anniversary: Liverpool have seen too much tragedy to forget fateful day in Belgium

Liverpool have seen too much tragedy to forget Heysel

Thirty years ago, 39 fans waiting to watch a European Cup final died as a result of a fatal cocktail of circumstances. Ian Herbert looks at how a club dealt with this tragedy
Amir Khan vs Chris Algieri: Khan’s audition for Floyd Mayweather may turn into a no-win situation, says Frank Warren

Khan’s audition for Mayweather may turn into a no-win situation

The Bolton fighter could be damned if he dazzles and damned if he doesn’t against Algieri, the man last seen being decked six times by Pacquiao, says Frank Warren
Blundering Tony Blair quits as Middle East peace envoy – only Israel will miss him

Blundering Blair quits as Middle East peace envoy – only Israel will miss him

For Arabs – and for Britons who lost their loved ones in his shambolic war in Iraq – his appointment was an insult, says Robert Fisk
Fifa corruption arrests: All hail the Feds for riding to football's rescue

Fifa corruption arrests

All hail the Feds for riding to football's rescue, says Ian Herbert
Isis in Syria: The Kurdish enclave still resisting the tyranny of President Assad and militant fighters

The Kurdish enclave still resisting the tyranny of Assad and Isis

In Syrian Kurdish cantons along the Turkish border, the progressive aims of the 2011 uprising are being enacted despite the war. Patrick Cockburn returns to Amuda
How I survived Cambodia's Killing Fields: Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape the US

How I survived Cambodia's Killing Fields

Acclaimed surgeon SreyRam Kuy celebrates her mother's determination to escape to the US