Sterling tumbles on bleak outlook for UK economy
12th November 2008
Sterling was aggressively sold-off across the board on Wednesday, notably dipping below $1.50 against the Dollar and touching a fresh all-time low of 1.1891 against the Euro, as the outlook for the British economy took a turn for the worse.
The Bank of England implied UK interest rates had further to fall in the months ahead, after unveiling its biggest downward revision to its inflation outlook since the Central Bank was made independent in 1997. Its November Quarterly Inflation Report showed UK consumer price inflation falling to just below 1.0% in two years time, marking a sharp contrast to its latest registered annualised reading of 5.2% for September.
On growth, the BoE acknowledged a marked deterioration in the outlook for domestic and global economic activity, saying the UK economy had “probably entered recession in the second half of 2008 and output is likely to contract further.” The Bank forecast that national income could shrink by two percentage points over the next few quarters and growth would probably be flat by the end of 2009.
In an accompanying press conference, BoE Governor Mervyn King said the Central Bank would be prepared to cut interest rates again if needed, following on from last week’s surprise 150 basis point cut, taking the UK base rate to 3.00%.
The report followed dismal employment figures released earlier that morning, confirming the number of people claiming unemployment benefit rose to its highest level in over a decade in the three months to September as the economy tips into recession.