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Silly season continues in financial markets

August is typically the time when the tabloid press goes a little bit bananas and makes up a load of guff to fill column inches.

Jaws seen off Cornwall, Jesus’ image on a piece of toast or Victor Meldrew spotted in space have all been printed by national dailies in recent years to fight off the notoriously slow news month that is August. Developments for the UK economy unfortunately have sharper teeth than a Cornish Great White.
The latest inflation figures from the UK showed that prices are still increasing above the Bank of England’s target rate of 2% ± 1% and with food prices rising at an annual rate of 3.4%, we are likely to see inflation continue to stay high through 2011, especially given January’s VAT increase.

This should support sterling in the mean time as traders drive up short term interest rate expectations. My belief is that we will see an interest rate rise of 0.5% in February of next year.

This should help the High Street and the rest of the retail sector over the important Christmas period and not endanger the economic recovery.
In the meantime, markets are likely to stay fairly quiet with a lot of liquidity off the trading tables in London and on to the bar stools of the south of France. As for me, I’m off to Cornwall to hunt some sharks.

Jeremy Cook, World First chief economist, 20.08.2010

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