© Neil Mellor
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I suppose the momentum will probably carry on over into the current quarter, and we will see fairly solid growth. Moreover, I believe Britain still has a prominent growth rate amongst the Group of Seven member nations. The bigger question is what happens next year. There is a lot of political uncertainty, which is growing due to the UK elections, since one of the parties, the Conservatives, is offering a referendum in 2017. The party is concerned, if they get the Mandate, they will have two years of limited investment in the UK. Thus, we can suggest that country definitely is not trying to grow or get an investment.
BoE officials dispute whether to raise the interest rate or not. Some members of the Monetary Policy Committee's believe it is time for rates to go up slightly to 0.75%, while seven members voted for keeping the interest rate at a record-low 0.5%. In your opinion, which of these measures will be more effective?
In my opinion, it is very hard to decide, since in many respects the country is on an uncharted territory. We have never had an economy this weak so long after the bottom in the cycle. Interestingly, two Committee members actually voted for rate hike a few months ago, just before the long series of particularly weak data, including wage figures, which were discussed actively by the BoE Committee.
However, I am not convinced that these two officials are solidly of the view that the rates need to go substantially higher. Secondly, I would not be sure that many members in the MPC are prepared to follow them, which in fact is quite the opposite. I think the status quo on the interest rates is probably that they are more likely to be raised in 2015 and beyond.
What will be the major drivers for the Pound by the end of this year and also in the beginning of the upcoming year?
In our opinion, the major driver will be the Dollar. It obviously will not be on a straight line, but many people feel that this is the beginning of long and sustain recovery for the Greenback. The Federal Reserve and US Department of the Treasury may have a specific look of the situation. I suppose that is the prevailing view that the Dollar is no longer a solid funding currency. Thus, this would have the substantial influence on the Sterling performance against the US Dollar.
Moreover, there are concerns about Britain's economy. The Sterling performed particularly well in the first half of the year, since investors felt that the UK was in the position of a tightened policy. However, there are serious doubts combined with political uncertainty related to general election the next year, which will have a significant influence on the Sterling. Going forward, I would be surprised if the Pound can make serious headway against the Dollar. I do expect the Sterling to be lower to the end of the year.
The bigger question, however, is how the British currency performs against the Euro, which depends on the ECB decision, whether it deploys QE. At my biggest guess, we will see the Sterling strengthening a little bit against the Euro. However, it is still a very soft market at this moment.
What are your forecasts for the GBP/USD, EUR/GBP for the short and longer term prospective?
We forecast the GBP/USD to see around 1.57 by the end of the year, since we do not expect it go down in a straight line. Talking about the EUR/GBP, I would not be surprised to see it reaching to 0.77 levels.