Sterling 'will still underperform'

The sterling may begin to improve now the base rate of interest has been cut, but it is likely to underperform for the rest of the year, according to a strategist at foreign currency exchange service provider HiFX.

Against the dollar (1.4500), the UK's currency has been at its lowest rate for six years and it has been at an all time low against the euro (1.1500).

Normally a cut to the interest rate would weaken the currency because it makes it less attractive for large investors looking to make a profit.

When there is a recession though, if the base rate is not cut, the currency suffers because it suggests that central banks are not trying to help the economy.

Currency slower casetrategist at HiFX Marc Cogliatti said: "The sterling's weakness is a major headache for the legions of importers, with the rapid pace of depreciation giving them hardly any time of adjust."

He added that the Bank of England will need to stop the pound declining more in order to protect importers.

The Bank said the decision to cut the base rate to two per cent was taken after consumer spending and business investment fell.