BRITISH POUND 3RD QUATER OUTLOOK 2008

30 July 2008 

The second quarter of 2008 marked yet another extended period of consolidation for the British pound as the currency simply range traded between 1.94 and 1.98 for the majority of the time. In fact, the currency ended little changed from the start of April, and for that matter, the beginning of the year!

The second quarter started out with a bang as the Bank of England cut the Bank Rate by 25 basis points to 5.00 percent amidst signs of distress in the financial sector and a housing-led economic slowdown in the UK. However, the scenario rapidly became more complex for the UK's Monetary Policy Committee (MPC) as time went on, as consumer price inflation started to accelerate on the back of surging oil and food costs.

As the third quarter begins, the Bank of England is still grappling with these issues, and the future of the British pound will continue to depend upon whether the MPC opts to focus more on the economy and the financial markets or rising price pressures.