Currencies

THE POUND may fall as surveys are expected to show that four interest rate cuts in as many months aren't enough to steer the economy safely away from recession.

The Bank of England meets on Wednesday and Thursday to decide if a fifth easing is needed, after trimming 150 basis points from the benchmark base rate since October. At 6 per cent, the benchmark rate is already at its lowest level since the Bank took charge of monetary policy in May 1997.

"Time is running out for strong sterling," said Ciaran Barr, senior UK economist at Deutsche Bank. "Surveys will continue to indicate the economy is hovering on the edge of recession." Mr Barr said he expects the Bank of England to snip a quarter-point from its base rate this week, sending sterling to 70 pence per euro.

On Friday the pound slid as low as $1.6419, its weakest since 13 January, but was little changed at 0.6910 per euro.

Surveys on Monday and Wednesday from the Chartered Institute of Purchasing and Supply will give policy makers the opportunity to examine the health of the economy before deciding rates. The most recent one on manufacturing showed that the ninth straight contraction had pulled the index to its weakest point since its inception in January 1992.

The CIPS's last services survey, which showed a second monthly contraction and employment shrinking for the first time on record, was released the day before the Bank of England opted to cut a quarter-point from the base rate and restore it to its lowest level since September 1996.

Analysts believe that the base rate could fall to 5.75 per cent this week. Two predict a half-point cut to 5.5 per cent and five expect rates to stay unchanged at 6 per cent. "There's room for plenty more easing in the coming months and that's going to take its toll on the pound," said Sean Callow, a currency analyst at market research firm IDEA. He said he sees sterling falling to 72p per euro in the coming months.

Lower interest rates weaken the pound by reducing the return on money market deposits. For now, the UK three-month deposit rate - currently 5.82 per cent - tops the 4.97 per cent offered in the US and 3.07 per cent for the 11 euro nations. The pound will find dwindling support from investors as that gap narrows.

"We're in for a modest descent" for sterling, said Claudio Piron, a treasury economist at Standard Chartered. "The longer-term rate outlook is that we've got another 50 basis points to go." He sees sterling falling to $1.63 by the end of February.

The National Institute of Economic and Social Research expects interest rates to decline to their lowest level in almost half a century, as inflation declines and growth slows.

"We now expect the Bank of England's base rate to fall to 5.0 per cent by the start of 2000 and below 4.0 per cent in 2001, taking rates down to a low not seen since 1955," said Martin Weale, an economist at the NIESR.

The institute expects inflation to ease to 1.2 per cent during the final quarter of this year, from an annual 2.8 per cent in December. Underlying inflation, used to set interest rates, is likely to decline to 2.1 per cent.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee