Pound falls on UK economy and bank policy fears

The pound weakened against the euro and the dollar yesterday, with investors showing concern over the UK economy and Bank of England policy.

Sterling had dropped to $1.631 against the greenback and a three-month low of €1.140 against the euro by this morning.

Analysing the trends, forex specialists Caxton FX suggested that investors could be reacting to a disjunction in central bank policies.

While the European Central Bank has reduced its lending rate to one per cent, the Bank of England has cut its own rate to 0.5 per cent.

The latter institution has also introduced a radical £175 billion programme of quantitative easing, printing more money to improve lending conditions for businesses and consumers.

Government deficits were revealed earlier this month to have grown by £8 billion in July.

GDP itself is shown by official figures to have shrunk by 0.8 per cent in the UK over the second quarter, compared to growth of 0.3 per cent in the same period for France and Germany.

Duncan Higgins, senior analyst at Caxton FX, added: ’We expect sterling’s current weak position to continue in the short term as investors remain wary of poor economic figures.’ADNFCR-2318-ID-19331658-ADNFCR