Sterling hit a two-week low on Tuesday after a Bank of England policymaker suggested a batch of weak UK data had convinced him monetary policy should be eased immediately, having last week said he needed more evidence of economic weakness first.
While stopping short of openly backing a cut in interest rates or quantitative easing (QE), Martin Weale said in a newspaper interview that last week's purchasing managers' data for the services and manufacturing sectors - which pointed to the sharpest contraction since the 2008-09 financial crisis - were "a lot worse" than he had thought.
Weale said the numbers would be "very material" for the decision the BoE's monetary policy committee (MPC) takes at its meeting next week.
The BoE surprised markets in July by not cutting the benchmark interest rate from its current historic low of 0.5 percent. But minutes of the decision showed most policymakers expected to back an unspecified package of measures to boost the economy at the central bank's August meeting.
("Weale's interview) fits with our view that we do expect further stimulus from the Bank of England," said Societe Generale currency strategist Alvin Tan.
"On top of that we've only just started to see the data flow from the post-referendum period, which we think will continue to be quite negative. Together, that will have a negative impact on sterling into early next year."
Sterling has tumbled almost 12 percent against the dollar since Britons voted to leave the European Union last month. Investors are worried that "Brexit" will have negative consequences on the economy and in particular Britain's already huge current account deficit, which will widen further if investment flows dry up.
The pound fell to as low as $1.3057 on Tuesday, its weakest since July 12, before recovering to about $1.3076 by 0800 GMT, leaving it down half a percent on the day. That still left it almost 3 cents higher than a 31-year low hit last month before it was clear who Britain's prime minister would be.
Against the euro sterling fell 0.6 percent to 84.17 pence .
Sky News reported on Tuesday that some banks have warned businesses they may have to charge them for parking money with them due to low interest rates.
"With some UK banks already warning business customers over the prospects of charges to their deposits, should the BoE introduce negative rates, we suspect that QE will be the MPC's preferred policy tool in terms of delivering a more potent stimulus," wrote ING strategists in a note to clients. (Reuters)
Source: www.businessworld.ie
