Higher interest rates make holding the sterling more attractive to foreign investors, and the higher level of demand will place upward pressure on the value of the pound. However, higher interest rates make borrowing less attractive which slows investments, consumption, and employment leading to slower economic growth. On the other hand, a reduction in interest rates makes saving less attractive and borrowing more attractive, which stimulates spending and faster economic growth.
Still, lower interest rates make holding the sterling less attractive to foreign investors and the lower level of demand will place downward pressure on the value of the pound.
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