Rate cuts 'could weaken the pound'

If interest rates are cut to nearly zero today, then this could weaken the pound even further, it has been suggested.

The volatile financial market is forcing banks to take action but slashing rates dramatically could cause global investors to wonder why such action had to be taken, explained senior currency strategist at HiFX Chris Towner.

Although it would benefit British exporters in the longer term, he continued, it would not be such good news for importers and already the cost of goods and raw materials brought into the country have increased significantly.

"However the broader, more important, issue is the competitiveness of our economy, which goes far beyond the exchange rate," Mr Towner added.

The market will be preparing itself for a number of possibilities today, he concluded.

Earlier this week, economist Michael Baxter from Defaqto said that the value of sterling will depend on what happens in the eurozone.

He stated that, unless the rate of the euro falls further than the pound, then the British currency will be in trouble.