Sterling slips on more Bank of England stimulus speculation

Jake Cordell
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Sterling had a touch of the Jennifer Lawrences about it
Sterling had a touch of the Jennifer Lawrences about it (Source: Getty)

Sterling has fallen to a one-month trough against the dollar and bond yields have set a new all-time low this morning as the prospect of ultra-loose monetary policy from the Bank of England continues to drag on the currency.

The pound slipped below $1.30 for the first time since mid-July overnight after monetary policy committee (MPC) hawk Ian McCafferty said more interest rate cuts and quantitative easing would be needed later this year.

Writing in The Times today, McCafferty said: "If the economy proves to have turned down in line with the initial survey signals, I believe that more easing is likely to be required, but that can easily be delivered in coming months. Bank rate can be cut further, closer to zero, and quantitative easing can be stepped up."

His comments, and the prospect of weak economic data later today, pushed sterling to $1.2971 before it recovered slightly to $1.2990, down 0.4 per cent from yesterday. Yields on UK government 10-year bonds also dropped below 0.6 per cent for the first time in their history.

Read more: Should Philip Hammond call an early Autumn Statement?

Last week, when governor Carney unveiled his economic salvo to help the UK economy avoid a recession, the Bank said a "majority" of members on the rate-setting MPC believed further stimulus would be needed.

However, the calls from McCafferty, who voted against the extension of the Bank's government bond-buying programme from £375bn to £435bn, suggests a fairly convincing consensus could emerge once more data is published - raising the likelihood of further action.

Purchasing Managers' Index (PMI) surveys have fallen at their fastest pace since the recession, but rate-setters believe their latest stimulus package will help the UK avoid a contraction. With the lack of hard data for the post-vote period, the Bank of England have placed a lot more weight on business surveys and confidence indicators.

The pound's slide against the dollar was accentuated by the continuing fallout from the strong US jobs report out on Friday, which raised the chances of the Federal Reserve raising interest rates this side of the US election. Divergent monetary policy, with the US tightening and the UK, Europe and Japan loosening, is pushing the greenback higher.

Traders also fear figures on the UK's exports and imports out this morning will show the trade deficit widened in the month of the referendum, further weighing on the currency.