Sterling recovers after central bank postpones further QE

Friday, 08 March 2013 08:16

Sterling went up to $1.507 against the dollar as the Bank of England decided not to increase the quantitative easing programme at its latest metting of the Monetary Policy Committee (MPC) today.

Sterling had fallen to its weakest level for more than two-and-a-half years against the dollar in the hours before the latest monetary policy decision from the Bank of England.

The pound strengthened by more than a cent against the dollar just after the central bank announcement was made.

The central bank made its decision on whether to add to the £375 billion quantitative easing (QE) stimulus that aims to boost the economy and decided against it for now.

Analysts believed the decision was on a knife-edge with conflicting economic data and concerns over whether further QE will work or whether it will have a negative effect in raising inflation affecting the decision.

Last month bank governor, Sir Mervyn King voted to add £25 billion to the QE programme along with David Miles and Paul Fisher but they were outvoted by 6-3.

Since then, conflicting economic data has led economists to believe that the MPC might vote for further stimulus.

Nida Ali, the economic adviser to the Ernst & Young Item Club, said: "There is a real sense of 'if not now, then when?' The MPC are sending mixed signals which are adding to the sense of uncertainty. We would be strongly in favour of looser monetary policy and had been encouraged by the MPC's recent comments and by signs that they were starting to think outside the box. But talk is cheap and it is time that they delivered."

Sterling has been under pressure since the start of 2013, falling to a 30-month low against the dollar and a 16-month low against the euro. It has fallen by around six per cent against both currencies so far this year and is the worst performing of the 10 developed-market currencies.

This morning the pound fell by 0.2 per cent against the dollar, down to $1.4993 and fell by 0.6 per cent against the euro, down to 86.79 pence.

Currency analysts expect the pound to fall by a further seven per cent against the dollar by the end of the year, down to $1.40.

Howard Archer, Chief UK & European Economist at IHS Global Insight said: "The Bank of England’s decision to hold off from stimulative action was highly likely the result of a tightly split vote and we strongly suspect that the MPC will act in the second quarter and very possibly as soon as April."


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