The U.K. pound will weaken to 89 pence per euro in the next three months as the European Central Bank starts raising borrowing costs four months before the Bank of England, Danske Bank A/S predicts.
Danske Bank pared back its forecast from a previous estimate of 86 pence as it expects the ECB to raise its refinancing rate to 1.25 percent in April from 1 percent.
“Markets are pricing almost a 100 percent probability that the ECB will raise rates in April; I am less confident that the Bank of England will raise rates” because the U.K. economy is too fragile, John Hydeskov, chief analyst at Danske Bank in London said by phone.
Hydeskov forecasts the U.K.’s central bank will keep its benchmark interest rate at a record low of 0.5 percent until August. “In my view a May rate hike is simply not realistic,” he said.
The pound was 0.4 percent stronger at 86.72 pence per euro as of 12:55 p.m. in London after depreciating to 87.10 pence, the weakest since Nov. 5.