Sterling tumbles to one-week low against the dollar
The sterling tumbled to a one-week low against the dollar in trading on Wednesday after the Bank of England (BoE) delivered its latest quarterly inflation and growth forecasts.
In his speech, Mervyn King, governor at the BoE, confirmed the view that the UK is not out of the woods yet.
Although he downgraded his economic growth forecasts and said inflation would fall well below its two per cent target in two years, even if interest rates stayed low, he also leaned towards additional quantitative easing, rather than monetary tightening.
His comments caused the pound to fall against a plethora of currencies, falling one per cent against the dollar to $1.5683, its weakest since 30th July. It also fell against the euro to 83.05 pence from 82.87 pence before the report.
Mark Bolsom, head of the UK trading desk at Travelex Global Business Payments, said that the quarterly inflation report was a reality check.
He said: "The preliminary reading of Q2’s gross domestic product figure had put the markets in a good mood, as it looked like the economy was back on track.
"But Mr King confirmed the view that we’re not in a position to withdraw stimulus or even tighten monetary policy.
"Mr King was also very defensive about the bank’s record of inflation, but they have overshot their inflation target for 42 out of the past 51 months. January’s VAT rise is definitely not going to help either – and they have been forced to increase their inflation forecast."
