views

Sterling hit as Bank warns of long-term falls

STERLING fell sharply against the dollar and euro yesterday after the Bank of England warned of a long-term decline in the pound&rsquo;s value.<br />In its Quarterly Bulletin, the central bank yesterday said that foreign investors may be rethinking their long-term affinity with pumping money into sterling-denominated investments.<br /><br />The UK has run current account deficits since the 1990s and international investment is required to bridge the gap. The pound yesterday fell as far as &euro;1.1016 and $1.6134, its lowest levels since April. <br /><br />&ldquo;The financial crisis may have led overseas investors to reassess their willingness or ability to purchase sterling assets and thereby finance the UK trade deficit,&rdquo; the bank said. <br /><br />And a wider shift in the economy could also cause the recent falls in the pound&rsquo;s value to be longer-lived. <br /><br />&ldquo;It is possible that sterling&rsquo;s depreciation may be part of a more prolonged process of rebalancing of the UK economy, generating a fall in the long-run sustainable real exchange rate.&rdquo; The value of sterling has dived as the government has launched giant stimulus measures to fight the financial crisis that many fear will leave the nation crippled with debt.