Our forecast that the euro will fall to parity with the dollar next year, combined with a smaller decline in the pound from $1.47 to around $1.40, would mean a further rise in the euro-sterling exchange rate from €1.20 to around €1.40. Given the UK’s stronger trade links with the rest of Europe than with the dollar bloc, this would also mean a further strengthening of sterling’s trade-weighted index: good news for inflation, but bad for the prospects of an export-led recovery.
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