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Sterling/Euro analysis and forecasts 23rd January 2008
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Market analysis
The UK economy is likely to weaken further in the short term. Consumer spending has already slowed and the pressures on spending are liable to intensify in the short term, especially with falling disposable incomes. The Bank of England is more concerned over inflation and will want to be cautious, but the central bank is likely to sanction a series of rate cuts over the next few months.
Given the property distortions in the economy, there is the potential for a much more serious deterioration and recession conditions within the UK. There will also be greater concerns over the UK current account position while capital inflows are liable to be weaker, especially if risk tolerances remain lower
The Euro-zone economy is, however, also liable to weaken which will undermine the Euro and the UK currency now offers some medium-term value.
Risk factors:
Forecasts:
| Currency | Spot (23-01) | 1-month forecast | 3-month forecast | 6-month forecast | 12-month forecast |
| EUR/GBP | 0.7460 | 0.7360 | 0.7600 | 0.7700 | 0.7450 |
| GBP/EUR | 1.340 | 1.359 | 1.316 | 1.299 | 1.342 |
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