CURRENCIES

THE POUND is expected to gain in the coming days amid evidence that the UK's economic recovery is accelerating without producing much inflation.

Figures last week showed falling unemployment and rising retail sales, while the Bank of England said it expected growth to quicken in the coming months, cementing expectations interest rates would not be lowered in the near future. A report this week is likely to show further retail sales growth.

"We may not be faced with further cuts in interest rates, and recent numbers signal a pickup in UK growth," said Uwe Fuehrer, head of currency sales at Credit Agricole Indosuez. The pound "will continue to have a strong performance".

The pound rose 1.3 per cent against the euro last week, rising to 65.86p per euro. Against the dollar, it declined 0.2 per cent for the week to $1.6059.

The central bank indicated on Wednesday that growth would accelerate in the next two years more than it previously expected, saying the economy could expand 2 per cent by the end of this year and 3 per cent in 2001. Previously the central bank had been forecasting a growth rate of about 1 per cent for this year.

Other figures showed sales in British shops and supermarkets rose 0.8 per cent in July from a year ago as good weather boosted demand for summer merchandise. Also, the number of people out of jobs dropped in July by a larger than expected margin, driving the unemployment rate to its lowest level in 19 years.

"We expect recovery to continue in the UK," said Michael Rottman, a currency strategist at HypoVereinsbank in Munich. The pound could rise to as high as $1.625 in the coming weeks, he said.

A separate measure of retail sales, slated for release on Wednesday, is expected to show that sales rose 0.5 per cent in July after holding steady the previous month, according to economists.

The report "has some potential to put upside pressure on the pound", said Ian Gunner, a currency strategist at ABN Amro. The pound could rise to $1.629 in the coming days, he said.

The absence of rate cuts means the money-market return on sterling deposits won't fall further. Three-month sterling deposits offer investors 23 basis points fewer than dollar deposits, while they offer 250 basis points more than euro deposits.

Some investors and strategists said economic growth is accelerating enough to prompt the central bank to raise interest rates in the coming months; a move that would make sterling deposits more alluring.

"With the underlying statistics being stronger, the next move in interest rates will be up [some time later this year]," said Stuart Kinnersley, who helps to oversee $4bn as chief investment officer at Nikko Global Asset Management.

Still, figures showing that inflation remains at bay augur steady rates for the time being, economists said. The central bank said on Wednesday that it expected the inflation rate to remain below its target in the next 12 months.

A report on Tuesday is likely to indicate that the retail price index minus mortgage interest payments, the Government's chief inflation yardstick, was unchanged at 2.2 per cent in July, according to economists.

PROMOTED VIDEO
News
ebookA unique anthology of reporting and analysis of a crucial period of history
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

BA/PM,EMIR/Dodd-Frank,London,£450-650P/D

£450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...

Senior Analyst - ALM Data - Banking - Halifax

£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...

Java developer - Banking - London - Up to £600/day

£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...

Liquidity Reporting-Basel III-LCR-Bank-£400/day

£400 per day + competitive: Orgtel: Liquidity Reporting - Basel III - LCR - Ba...

Day In a Page

Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star
How live cinema screenings can boost arts audiences

How live cinema screenings can boost arts audiences

Broadcasting plays and exhibitions to cinemas is a sure-fire box office smash
Shipping container hotels: Pop-up hotels filling a niche

Pop-up hotels filling a niche

Spending the night in a shipping container doesn't sound appealing, but these mobile crash pads are popping up at the summer's biggest events
Native American headdresses are not fashion accessories

Feather dust-up

A Canadian festival has banned Native American headwear. Haven't we been here before?
Boris Johnson's war on diesel

Boris Johnson's war on diesel

11m cars here run on diesel. It's seen as a greener alternative to unleaded petrol. So why is London's mayor on a crusade against the black pump?
5 best waterproof cameras

Splash and flash: 5 best waterproof cameras

Don't let water stop you taking snaps with one of these machines that will take you from the sand to meters deep
Louis van Gaal interview: Manchester United manager discusses tactics and rebuilding after the David Moyes era

Louis van Gaal interview

Manchester United manager discusses tactics and rebuilding after the David Moyes era
Will Gore: The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series

Will Gore: Outside Edge

The goodwill shown by fans towards Alastair Cook will evaporate rapidly if India win the series
The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz