Sterling dropped against the dollar this morning after Bank of England (BoE) governor Mark Carney downplayed the case for an increase in interest rates, citing the "mixed signals" present in the UK economy.
Sterling fell below $1.27, a fall of 0.4 per cent, following Mr Carney's annual Mansion House speech, in which he suggested rates could remain at their 0.25 per cent low for some time.
"From my perspective, given the mixed signals on consumer spending and business investment, and given the still subdued domestic inflationary pressures, in particular anaemic wage growth, now is not yet the time to begin that adjustment," he said.
"In the coming months, I would like to see the extent to which weaker consumption growth is offset by other components of demand, whether wages begin to firm, and more generally, how the economy reacts to the prospect of tighter financial conditions and the reality of Brexit negotiations."
The comments come after the Monetary Policy Committee (MPC), which decides the direction of interest rates, came the closest since 2007 to an increase last week.
The latest tally, which was described as "surprisingly hawkish" by commentators, saw the MPC vote by five votes to three to maintain rates, in contrast to an expected majority of seven versus one. It came at a time when the central bank is contending with above-target levels of inflation.
"As spare capacity erodes, the trade-off that the MPC must balance lessens, and all else equal, its tolerance for above-target inflation falls," added Mr Carney.
"Different members of the MPC will understandably have different views about the outlook and therefore on the potential timing of any Bank rate increase. But all expect that any changes would be limited in scope and gradual in pace."
