Sterling falls to 3-year low versus dollar

THE POUND crashed to a three-year low against the US dollar yesterday, as weaker than expected data from the UK’s industrial sector raised the prospect of even looser monetary policy.

The Office for National Statistics (ONS) said that UK manufacturing and industrial production were unexpectedly poor in May, weighing on sterling.

Meanwhile across the pond, worries that the US Federal Reserve will slow down its mass asset-purchases – intended to stimulate the economy – saw the greenback soar.

Sterling sank as low as $1.4812, the lowest level since the summer of 2010.

The official data on the UK’s industrial prospects bucked expectations for growth, showing the manufacturing sector contracted by 0.8 per cent in May, the fastest pace of fall since January. Markit’s purchasing managers’ index had previously suggested that the factory sector expanded in May and June.

Manufacturing group EEF has also seen improvements in sentiment across the second quarter, driving up expectations for a better result in the official figures.

“To many it feels like we are experiencing a more positive outlook but today’s figures do show that a number of challenges still persist,” said Mike Rigby, head of manufacturing at Barclays.

The ONS also revealed that the country’s trade deficit was its widest in six months, growing from £2.1bn in April to £2.4bn in May as the UK sold fewer services abroad.

Sterling has fallen against other currencies since last week when Mark Carney became governor of the Bank of England, and the Bank’s monetary policy committee indicated easing is set to continue in the near future.

Despite the negative figures from factories, the International Monetary Fund (IMF) yesterday upgraded its growth forecasts for the UK in 2013, saying it now expects 0.9 per cent growth this year, a rise from the 0.7 per cent predicted in an earlier report.

The World Economic Outlook, produced by the IMF, has previously criticised the policies of George Osborne and pushed for more public spending to stimulate the economy. But yesterday, the UK was one of a select few countries that got an upbeat verdict from the fund, which cut its overall outlook for world growth. Growth expectations in the US and the major Eurozone economies were either unrevised or marked down.

That means Britain will grow more quickly than Germany, which is set to grow by 0.3 per cent in 2013. Other big European economies like France and Italy are set to shrink.

But an IMF spokesman played down its optimistic view of the UK: “We also don’t think that it changes the big picture for the UK, namely that the recovery is weak”.

Meanwhile a survey from by the Institute of Directors has added to hopes that business confidence is on the up, after 62 per cent of its members said that the economy is at its strongest point since the crisis began – the highest proportion since 2008.

But directors are still expecting an uneven recovery. Just 22 per cent believe the Office for Budget Responsibility’s estimate for 1.8 per cent expansion will be beaten, while 39 per cent think the economy will grow by less.