The pound hit a record low against the euro and a basket of currencies on Wednesday after a report indicating a steep economic downturn.
The pound fell to 79.7, the lowest on a daily basis according to Bank of England records going back to 1990, after a think tank said the nation’s economy contracted more than many believe in the three months to November. The news, which kept expectations high that the Bank will continue to cut interest rates aggressively, helped to push sterling as low as 87.75 pence against the euro, its weakest since the single currency was introduced in 1999.
“Sterling is generally being weighed down by the gloomy prospect for the economy,” Chris Gothard, currency analyst at Brown Brothers Harriman. “We have declining interest rates and there isn’t really anything at the moment to provide a strong reason to buy.” Despite the pound’s losses against the euro, it edged up 0.2% to $1.4767 against a broadly weaker dollar on a slight pullback in risk aversion as global shares gained on news of a tentative agreement to bail out US carmakers.
The National Institute of Economic and Social Research said on Wednesday Britain’s economy shrank by a full percentage point in the three months to November and the pace of contraction looked set to accelerate into the end of the year. The report came on the heels of dismal data in manufacturing, housing and retail sales on Tuesday, which bolstered expectations that a sharp economic downturn will put more pressure on the central bank to ease rates further.
“Altogether, these readings made a strong case for the United Kingdom ultimately suffering the worst recession in the developed world,” Commerzbank analysts said in a research note. The Bank has cut key interest rates by 300 basis points since October to 2%, their lowest since 1951. (Reuters)