Author Topic: The pound plunged to a five-year low against the dollar  (Read 735 times)

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Sterling hits five-year low after Bank's chief economist Haldane mulls possible rate cut

The pound plunged to a five-year low against the dollar last night after a top Bank of England official said that UK interest rates could be slashed towards zero.

Chief economist Andy Haldane said that rates may need to be cut again, having been frozen at 0.5 per cent for more than six years.

He said such a move would be required if inflation threatened to stay too low for too long. It has already tumbled to 0.3 per cent – its lowest level since 1960.

The comments – which exposed Haldane as the Bank’s arch-dove – sent sterling to a five-year low of $1.47 against the rampant greenback while investors speculated that Britain could soon enter an era of even lower interest rates.

The pound edged higher against the euro, however, as the single currency was hammered by worries over Greece.

Bank officials have consistently said that UK rates are more likely than not to rise in the coming years as the economy recovers.

But in a speech in Rutland yesterday, Haldane said: ‘I think the chances of a rate rise or cut are broadly evenly balanced.’

He added that the central bank ‘needs to stand ready to move off either foot’. The comments, which Haldane insisted constituted a ‘personal view’ and did not reflect the position of the rest of the rate-setting monetary policy committee, appeared to leave him isolated at the central bank.

Governor Mark Carney only last week said it would be ‘extremely foolish’ to cut rates to counter low inflation caused by an uncontrollable fall in the oil price. Carney said it would risk adding ‘unnecessary volatility in inflation’ – adding that he expects inflation to return to the 2 target ‘within two years’.

But Haldane said there was a risk inflation would not return to target as expected having ‘dropped like a stone over the past year’.

Haldane is also at odds with fellow MPC members Martin Weale and Ian McCafferty who until recently argued that interest rates should rise.

Howard Archer, chief UK economist at research group IHS Global Insight, said: ‘Despite Andy Haldane’s remarks, an interest-rate cut still looks highly unlikely. It looks more likely that the Bank will hold off from raising interest rates until the early months of 2016 rather than act in late 2015.’

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