Rate cut won’t ease pressure on sterling

Currency specialist HiFX anticipates that today’s cut is unlikely to ease the pressure on Sterling for the time being.

Chris Towner, Currency Strategist at currency broker HiFX explains “Whilst the market had been anticipating that the next move would be a cut, the timing will be a little surprising to those who had been expecting no change until the New Year. With Sterling already on the back foot against the Euro, today’s news is likely to place further downward pressure on the pound and may provide the catalyst for GBP/EUR to break its all time low at 1.3777. For our private clients looking to buy Euros to finance an overseas property purchase, today’s news will be particularly unwelcome and could make that dream property unaffordable.

“Today’s rate cut has followed an unusual period of uncertainty in the market place about the outcome of today’s meeting, with many commentators expecting a vote of no change. The news comes despite recent concerns about rising inflation. CPI has pushed back above the Bank’s 2.0% target level in recent months and with food and energy costs on the up, risks remain to the topside. The assumption has been that the committee would look to see how the retail sector performs over the important Christmas period before acting. Instead, concerns surrounding the current credit crisis and the further impact that this could have on the UK economy have prompted the MPC to act now.

“The housing sector has already shown signs that prices are beginning to slow, and the committee will remain wary of the potential impact that further slowing could have on the UK economy. The focus now turns towards the minutes from today’s meeting due out in two weeks time to get a clear understanding behind today’s decision and gauge the committee’s thinking about policy going forward.”