Recent market movements suggest that investors have taken the robust economic data and the decision of the Monetary Policy Committee (MPC) to hold back from restarting quantitative easing (QE) at its November meeting as signs that further monetary easing has become less likely. Real gilt yields have risen, while market expectations for official interest rates have remained unchanged over the month – both had fallen in recent months. Meanwhile, sterling has gained ground against the dollar and euro, reflecting not only the decreasing chance of more QE, but perhaps also the renewed escalation of fiscal fears in the euro-zone which sterling had benefited from earlier in the year.
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