Sterling dives to a 10-month low

Julian Harris
Follow Julian
THE POUND has sunk to its weakest level since early last year, with analysts fearful that it could crash even further in the coming days.

Sterling touched €1.1875 during yesterday’s trading, its weakest print against the euro since the middle of March 2012. It has plummeted from a peak of around €1.29 last summer.

Against the greenback, the pound neared $1.58, down from $1.63 at the start of this year.

A weaker pound is likely to stoke inflation in the UK, with the official consumer prices index (CPI) still stuck at 2.7 per cent. CPI has remained above the Bank of England’s two per cent target for 37 straight months.

The government’s mammoth debt pile and stubbornly high annual deficit are believed to be partly to blame, along with the UK economy’s persistently sluggish levels of growth.

On Friday the Office for National Statistics will publish its first estimate of Britain’s GDP in the fourth quarter of 2012. Any contraction in GDP – which could signal the start of a technical triple-dip recession – would put more downward pressure on sterling, analysts say.

“Sterling is down 20 per cent since 2007 on a trade weighted basis but this has done little for export growth,” commented Louise Cooper, founder of Cooper City.

“A sterling crisis that does little for exports, imports inflation and results in few international buyers for our government debt – gilts – would be the worst of all worlds,” she warned.

The latest public borrowing figures will be published this morning.

“In the last six months gilts have gone from yielding 1.5 per cent to over two per cent. So even though gilt prices are heavily manipulated through the [Bank of England’s] extensive quantitative easing programme, there are signs that lending to the UK state is less popular than before.”

Former Bank of England official Andrew Sentance last night hit out at the UK’s “benign neglect of sterling.”

“The Bank governor talks down the pound – if the markets see that as the view of the authorities, then they need good reasons to bet against it. And they don’t have good reasons at the moment,” Sentance told City A.M.

“It’ll take stronger growth and lower inflation [for the pound to recover] and it doesn’t look like we’re going to get that,” he added.