Pound falls following BofE announcement

A less than rosy economic forecast by the Bank of England caused the pound to fall to a six-month low against the dollar and to one of its lowest levels against the euro for 15 months on Wednesday.

Pound falls following BofE announcement


The Bank of England revised down its GDP growth expectations from 2% to 1.7%, and revised up its inflation forecast, which is expected to reach at least 3% by the summer. Inflation is anticipated to remain above its 2% target for three years. 

Stirling has already fallen 5% in 2013, which will put further pressure on inflation as the cost of imported goods increases.

Andy Scott, premier account manager at foreign currency exchange brokers hifx, said: “This paints a continued weak outlook for the economy with households continuing to be squeezed as the price of food and energy increase at a faster rate than pay. That’s been a drag on the domestic economy over the last few years and since they won’t increase interest rates to combat inflation rises it looks set to weigh.”

The MPC also said that they were open to further bond purchases if the GDP and inflation outlook warranted it, raising concerns about the repercussions on the UK’s credit rating.

Jason Conibear, trading director at the forex specialists Cambridge Mercantil, said: "Even though both the Bank and the CBI predicted today that the UK economy will return to growth in the current quarter, lingering doubts over the fragility of the recovery will continue to dominate the Bank’s monetary policy.

"There will be more quantative easing if needed. With the British government set to miss its borrowing targets, the UK’s prized AAA credit rating is looking shakier by the day.

"Market confidence in the pound was already thin. The Governor’s admission that the inflation target is to be quietly ignored while the economy remains in intensive care has stretched it even further,” he added.


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