Off the back of a booming economy, the markets have brought forward rate hike expectations to late 2014 boosting Sterling to a six-year high, according to a Berenberg Bank report.
On 24 June, Bank of England governor Mark Carney appeared to do a U-turn, reversing his previous view that a rate rise could happen this year, adding that growth could be offset by spare capacity in the UK.
However, the report suggested the BoE will probably raise rates faster than market expectations adding rates could hit 2.5% by end-2016.
Berenberg said: “Growth is strong, unemployment is dropping like a stone and house prices are booming. The BoE may delay action if wage growth remains weak, but that does not seem likely given the economic conditions.”
“This is a good-news story,” said the bank as employment in manufacturing continues to boom.
“The end of the euro-crisis and continued US growth have been far more important for exports than sterling’s recent rise. Nearly half of UK exports go to the Eurozone. Any improvement in that massive market can easily dwarf the negative from a higher, but still competitive, level of sterling.”
