Neil Mellor, Senior Currency Strategist at BNY Mellon, on Pound and Britain's economy

To some extent it is. It seems that the biggest concern regarding the figures we have seen recently is quality and breadth of growth. In many respects it is very typical for the U.K. recovery, because it has been fuelled by consumer spending and largely underpinned by the credit growth. In my opinion, many people would rightly point to the fact that we have little too much of this in the run-up to the crisis. It is really a case of "beggars cannot be choosers", we had a position where the BoE had only partially deflated an asset price bubble. The only real thing it could do was encourage growing the use of credit. The recovery is ongoing; however, it can only be declared to be mature, when we start to see the investment starting to pick up and exporters starting to move forward as well. It is the case of so far so good.

It is a good question and it sounds compound to say that I do not know; however, I say that because I do not think that Bank of England really knows. We have a situation, where the BoE and Mark Carney would prefer to postpone the first rate hike for as long as it is possible to do so. I suspect that they will have to keep the gilt market aside to do that. The reason is simple, Mervyn King, prior Governor of the Bank of England, pointed out that many people got heavily leveraged in terms of the household debt. In an era of near zero percent interest rates, it might be said that these low rates are many households' budget thresholds. Therefore, it stands to reason when the first rate hike comes, a lot of people are going to be struggling to maintain mortgage payments and so on and so forth. 

Thus, the point is that we really need a broad recovery that is indisputably with a strong momentum before we start imposing what is going to be a very difficult period for many households. All in all, it seems as a reasonable forecast that rates will be raised around the middle of the next year onwards. Nonetheless, as already mentioned, I think Mark Carney will go to lengths to try and keep any notion of rigid sort of timetable rate hikes as distant as possible.

In a very short term the key driver for Sterling is actually the U.S. Dollar. I suppose we are going to see upward pressure on the Sterling against the Dollar largely because we are in a situation where no one is interested in holding the greenback. We suspect that could partly relate to the ongoing situation in the Ukraine, my suspicion is that the market fears the U.S. involvement in the region. Since the whole situation started couple of months ago the Dollar has been notably ignored and sold by the market. I think that is the near term driver. The driver for medium term could be the U.K. interest rate hike, with the rates potentially going up in the middle of the next year that is an attractive proposition. The only reason I would not become overly bullish on the U.K. currency in the medium term is that I think the Bank of England will have something to say about that as we have already heard in recent weeks a couple of officials say that that it would be preferable for the Pound to be not quite as strong as it is. Thus, what I expect is a move towards 1.70 level over the next few weeks, possibly next couple of months. Nevertheless, I think after that we might see a period of consolidation.

I would suggest that within the next three months we will see the Cable moving towards the top end of 1.60's. I think that by year end the Dollar will have recovered largely based on macroeconomics fundamentals and more hawkish Fed and it will be down more towards 1.66/65 sort of levels.

EUR/GBP is difficult one to call as it has not really gone very far over the last few months. Yet, I suspect that we probably are going to be range-bound for a while longer, I think sterling strength in the short term will see a test of 0.8150-levels that we witnessed in February and I anticipate it to stay pretty much stable within that range afterwards perhaps, with a minor pick up to 0.82 by the year end.