Sterling has had a bumpy ride through 2010, this can be seen from the initial opening against the US Dollar at USD1.62 then closing 8 cents down at USD1.54 by the end of the year.

Sterling did in fact drop to USD1.43 in the summer; this was partly due to the problems with its election with a hung parliament and fears that the UK’s credit rating could be downgraded.

Negativity about the UK subsided to a certain extent once the coalition government worked well together and the IMF stated that the UK coalition government’s work was heroic and their credit rating was safe. The UK’s outlook also strengthened once George Osborne’s plan to reduce the deficit was approved.

Going into 2011, it is more likely than not that Sterling will increase. This will be fuelled by the fact that the UK has been heating up with inflationary pressure, therefore it will not be an if they will increase the rate, but a when will the Bank of England increase the UK’s interest rate?

Once the rate is increased from the long standing record low of 0.5% we will see an initial boost in the currency which should be sustained to the end of the year, I predict that the government will increase its rate by 25 or 50 basis points. Once this happens we should see Sterling end the year up at around USD1.65.

Unfortunately these factors will mostly come into effect by Q2 or Q3 this year and pressure on the public sector spending could provide us with a slow start to 2011. This however will be balanced by an increase in manufacturing, financial services and consumer goods and we should see a healthy increase in Private Sector jobs by the second half of 2011.