Scope for interest rate cuts limited by falling value of the pound

James Carrick, Investment Strategist at Legal & General Investment Management said in today’s Fundamentals briefing that although the Federal Reserve has been cutting interest rates aggressively, the weakness of the pound may mean that there are fewer cuts in the UK than some commentators are predicting.

James Carrick said “It is important to remember that the pound has fallen significantly in value, particularly against the Euro and Asian currencies. This will provide a stimulus to the economy by making UK exports more price competitive but it will also mean that imports will be more expensive, putting upward pressure on inflation. The Bank of England might find it difficult to strike a balance between moderate growth and stable inflation”

“With this backdrop the prospects for significant rate cuts in the UK are quite limited in my view.”