“In recent weeks the macro-economic environment in the UK has deteriorated. The BoE has suggested that Q4 GDP could contract on a q/q basis, inflation is again proving to be stubbornly high and the poor performance of public finances has led to speculation that the UK is on course to lose its triple-A credit rating in the months ahead”, Rabobank says. “In our view the BoE is likely to resort to more QE potentially in February in an effort to steer the economy away from the risks of a triple-dip recession as the effects of continued falls in real wages, soft exports and the step up in austerity bites in 2013”.
“While sterling may still win a little ground vs. the EUR on bouts of tension in the Eurozone, on balance we expect EUR/GBP to edge slightly higher to 0.83 by the end of 2013”, they comment. “Cable, however, is likely to hold its ground due to our forecasts of a weak USD. We expect GBP/USD to end the year around 1.63”.