Sterling strengthened against the dollar on Tuesday after an upbeat survey on retail sales fuelled expectations of more interest rate hikes.
The CBI’s latest distributive trade survey found a balance of plus 44% of retailers reporting higher sales volumes in the first half of April after strong Easter trading – the highest balance since May 2004.
The pound was trading at 2.0045 US dollars after economists predicted another hike in interest rates from the Bank of England’s Monetary Policy Committee in the autumn on top of a widely-expected quarter-point rise to 5.5% next week.
Global Insight’s chief UK economist Howard Archer said: “The robust survey not only cements a quarter-point interest rate hike to 5.5%, but increases pressure for interest rates to rise further thereafter.
“We now expect interest rates to reach 5.75% in the third quarter.”
Interest rates ‘may rise to 5.5%’