Chris Walker, FX Strategist at Barclays Capital, on the Sterling and future impacts

One could make the argument that a weaker Pound will help achieve this, by encouraging economic rebalancing, but with inflation already above the target a large Pound depreciation would concern some on the MPC board. We do think the Sterling will move lower versus the dollar, but this is driven by the U.S. Dollar side primarily. Monetary policy will remain loose in the U.K., but we do not expect sweeping changes from the regime. 

Clearly, there has been a cyclical improvement in U.K. data, and to the extent the data is improved, the chances of further asset purchases are decreased. We assume that any policy changes will be fairly measured. The implementation of forward guidance will probably happen, but this ultimately works as a policy tool, when the yield curve starts to steepen. They can assign another variable, on which the markets can focus, and therefore stop the curve steepening in a situation where the BoE has a different view to the markets pricing. While a negative for the currency, I see it as unlikely to spark the sort of selloff you have mentioned. There are some risks particularly given the departure of Paul Tucker that the new members will be willing to take a more activist stance. At the moment this is the risk however and our base case is that the Sterling will be fairly stable, depreciating modestly versus the Dollar but remaining stable versus the Euro over the next 6 months. 

We believe that the fair value of the Pound is roughly around these levels. As I said, one can make the argument that a weaker Sterling will help to rebalance economy away from consumption towards external demand, but ultimately, the products that the U.K. exports are not particularly price sensitive, Therefore, it is hard to see how a weaker currency will help structurally, particularly where the negatives from such a policy move are significant in a context of inflation overshooting its target.