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Sterling carries on slumping on prospect of more rate cuts
Hugo Duncan16 Dec 2008
Sterling continued its vicious slide against the euro today as traders bet a bout of deflation will see further aggressive interest rate cuts next year.
But it was up against the dollar on expectations that the Federal Reserve will cut US interest rates from 1% to a record low of 0.5% or even 0.25% tonight.
Sterling was up 0.34 of a cent to $1.5334 but down 0.44 of a cent against the euro to 1.1196.
A euro was worth 89.27p. It came as a sharp fall in inflation raised the prospect of deflation and fuelled hopes of another cut in interest rates next month.
The Bank of England has cut rates from 5% to 2% since October, which along with high levels of Government debt and concern over the state of the UK economy has led to a run on the pound.
Official figures showed inflation running at 4.1% in November, down from 4.5% in October and a peak of 5.2% in September, on lower oil and energy costs.
Bank governor Mervyn King still had to write to the Chancellor to explain why inflation was so far above the 2% target. However, letters explaining why inflation is so far below target are expected next year.
It is likely that inflation will return to target in the first half of 2009 and then move materially below it later in the year, said King in his letter to Alistair Darling today. It is quite possible that I will next need to write to you to explain why inflation has deviated by more than one percentage point below the target during 2009.
King also warned the outlook for the economy has deteriorated in the past month.
In large part this weakness is being driven by the sharp falls in business and consumer confidence that have been evident worldwide since the intensification of the turmoil in global financial markets, triggered by the failure of Lehman Brothers in September, he said.
It has been exacerbated by the further tightening in the supply of credit to households and businesses, which is likely to continue to weigh on demand in coming months.
Reader views (7)
Tom - If you think domestic matters in the UK (feeble economy based on largest public and private debt of all Western nations, Pre Budget announcement to borrow from foreign investors grotesque sums to continue as if nothing needs change in the UK, etc etc) then you do not have the any idea why we are all selling our investments asap in the UK. In October 2008, 75% of all foreign investment in the UK from the past 4 years left. Not in the UK news but a fact. The £ decrease is all UK domestic. Selling one currency versus another is a RELATIVE judgement as to who will survive/prosper and who will fail/lag behind. The international vote on the UK domestic situation is very clear! Good Luck.
- Kr, Florence ITALY, 16/12/2008 19:06
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Is it true that the U.S. government is printing money at this time?
- Tom Feely, London, England, 16/12/2008 17:41
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Oh, er Nigel where has the Pound risen against the Euro?
- Arthur Lincoln, ., 16/12/2008 17:29
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Quick, help the pound recover !
Max out your credit card and buy imported junk you don't need from a foreign-owned shop, and be served by an immigrant worker.....
This Government is absolutely Shameless !
- Cap, london, 16/12/2008 16:39
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Nigel's right, the pound is some way up from the bottom against the dollar, so cut the spin and report the facts (which was that the Euro was going up, not the pound going down), eh? We're all big boys and girls, and I think we can understand that these are international, not domestic matters.
- Tom, London, UK, 16/12/2008 16:21
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But the pound has risen against the dollar and the Euro today, what are you on about?
- Nigel, London WC1, 16/12/2008 13:54
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If you have pounds, prepare to shed them now! (no shed required). Interest rates are interest rats when this low, where did the fraud really come from? If you would like to help humanity in this time of slow-down, please go out and buy the newest bit of technology you can find with all the latest features: That is how it is done:)
- G.B.P, Town, 16/12/2008 13:25
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