By Marcus Leach
Jeremy Cook, chief economist at World First foreign exchange, believes that the Bank of England needs to balance up the depreciation in sterling over the past months.
The Bank of England’s Governor, Mervin King, delivered his speech outlining the Bank’s forecast for various economic indicators, and Cook had this to say:
“While inflation has been stuck at around the 4% level in the first quarter we have to balance up the impact of the 4% depreciation we have seen in sterling in the past 3 months and the 25% increase in the price of oil; both have had a huge impact on inflation and will likely do so in the rest of the year as well," said Cook.
“Growth is still uncertain too but leading indicators are showing growth in all sectors however the weakness in consumer spending will cause weakness in the short term.
“Expectations are that we will see business investment improve and exports help through the second half of the year while impacts such as the tsunami and the Royal Wedding will continue to make data more volatile.
“As for interest rates, the curve now suggests that a rate hike is now not likely until December which will come as a relief to homeowners, businesses and exporters (GBP will likely remain weak on exchange rate differentials)
“But the pressure on the wages of the ‘man in the street’ is likely to be long and pronounced.
“We are still looking for a rate rise in August however as we believe that the MPC will want to guard some semblance of credibility over its monetary policy decisions.
“We also expect the summer months will see an increase in consumer spending and tourism that should provide a welcome boost to the services sector.”