The newest member of the monetary policy committee (MPC) has said the pound could continue to fall given inherent weaknesses in the UK economy.
Michael Saunders, who joined the Bank of England's rate-setting committee over the summer, told MPs today: "Given the scale and persistence of the UK's current account deficit, I would not be surprised if sterling falls further."
The former Citigroup economist, who said he was surprised by how well the UK economy was performing in the wake of the EU referendum, also said he was not particularly concerned about sterling's depreciation. So long as the fallout from the slide in the pound did not create distortions or instability in other asset prices, and was only the beginning of a new rebalancing, then the depreciation was not a problem.
The comments echo those made by the former governor of the Bank of England, Mervin King, who said yesterday the fall in the pound was good news for the UK economy.
Sterling was down 0.6 per cent against the dollar this morning at $1.2285 and had lost 0.2 per cent against the euro to stand at €1.1074. The dollar has also strengthened, accentuating sterling's decline in the wake of the second US Presidential Debate, and as Hillary Clinton solidifies her lead in the race for the White House.
Despite his comments, Saunders said he was not explicitly predicting a further fall in the pound, adding: "I am fairly agnostic as to whether any further depreciation is likely."
City forecasters have been forced to slash their outlook for the currency in the wake of sterling's flash crash last week. Initially thought to be a freak occurrence which saw the pound lose six per cent in two minutes, the currency has been under sustained pressure ever since, and is now eight cents down against the dollar compared with before the Conservative Party Conference.
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