Sterling rally to fade - 06-02-09
The Bank of England cut interest rates by a further 0.50% to 1.00% at the latest MPC meeting, in line with market expectations, and took rates down to a fresh record low.
In the statement following the decision, the bank referred to the risks of inflation substantially undershooting the 2.0% target while the outlook for consumer spending was weak and the global economy faced a major slowdown. The bank, however, also pointed to the stimulatory effect of substantial rate cuts while warning that Sterling weakness would boost import costs.
Markets will not be confident that rates have reached their lowest point, but there will be speculation over a period of stability. The UK currency also gained some support from an improvement in risk appetite. Sterling pushed to a high around 1.47 against the dollar and 0.8730 against the Euro later in the US session before edging lower on Friday.
UK industrial production fell 1.7% in December after a revised 2.5% decline the previous month, maintaining fears over the economy although the impact should be limited.
Tim Clayton
Investica Ltd
E-mail: tim.clayton@investica.co.uk
+44 (0) 1452 781001
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