Sterling will inch higher against the dollar in the next 12 months despite expectations that the Bank of England will hold interest rates at record lows until the end of 2012, as the greenback faces headwinds of its own, a Reuters poll found.
The poll, taken over the past few days, predicted the pound would nudge up to $1.64 by this time next year, around 4 cents higher than where it was trading earlier on Wednesday. Cable was seen at $1.63 in one month and six months, little changed from forecasts in an August poll.
It has been a volatile few weeks for sterling, after hitting a 3-1/2 month high against the dollar on August 19 with investors seeing it as something of a safe haven it slumped to a 7-week low on Tuesday, suffering from a series of weak UK data.
While a stronger pound would please the Bank of England by keeping inflation in check it would also knock exporters at a time when Britain's economic recovery remains fragile.
Britain's economy grew by just 0.2 percent from April to June and most analysts reckon growth will remain muted for many more quarters to come. Finance minister George Osborne said on Tuesday expectations had been revised down, but he defended a tough austerity plan designed to reduce a huge deficit that has put the brakes on growth.
British manufacturing activity shrank at its fastest pace in over two years in August as worsening global economic conditions hurt demand for British goods and new export orders fell for the first time in almost a year, data showed last week.
Similarly downbeat data has driven economists to push back forecasts for when the Bank of England will first raise rates from their record low of 0.5 percent to the final months of 2012.
A slew of dire data from the United States has heightened calls for the Federal Reserve to dig even deeper into an already depleted policy toolkit and consider measures until recently deemed too radical in a bid to support growth.
Against the common currency the pound will gain ground over the coming year as the 17-nation bloc faces tepid growth and struggles through a debt crisis that is threatening to engulf its larger members.
The poll, taken largely before the Swiss National Bank set a cap on the soaring franc, predicted one euro would be worth 88 pence in a month, 87p in six months and 86p in a year.
Sterling looks set for a less volatile month compared with August, according to calculations derived from the standard deviation of forecasts from the poll.
Sterling volatility is expected to fall to 7.4 percent on an annualised basis from 9.4 percent last month.
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