Pound rallies after Bank of England boss Sir Mervyn King says recovery is 'in sight'

The battered pound fought back from recent near three-year lows today after Bank of England boss Sir Mervyn King said sterling had fallen far enough and assured a recovery was "in sight".

Having slumped as low as 1.48 US dollars earlier this week, the pound rebounded on Sir Mervyn's upbeat comments - rising more than 0.5% to 1.52 dollars and holding firm at 1.16 euros.

Sterling had slumped to a 33-month low against the greenback on Tuesday after dire manufacturing data sparked further fears of a triple-dip recession in the UK.

The worse than expected manufacturing figures - which showed output in the sector slid by 1.5% during a snow-hit January - added to pressure on the pound after it received a mauling in recent months.

The decision by Moody's to strip Britain of its prized AAA rating last month hit the pound particularly hard and saw sterling recently overtake the Japanese yen as the G10 currency which has fallen the most so far this year.

The impact on import costs has threatened to raise inflation and squeeze household budgets further.

Prospects of further quantitative easing (QE) from the Bank have also weakened the pound after it was revealed that Sir Mervyn was one of three policymakers in favour of increasing QE by £25 billion to £400 billion at the February rates meeting.

Falls in sterling mark a sharp reversal of gains throughout 2011 and 2012, which was said to have been hampering recovery efforts by hitting exports as UK goods became expensive.

The Bank said last year it wanted to see the pound ease back, as its appreciation was strangling exports.

But in an interview with ITV News last night, Sir Mervyn suggested the Bank would not be seeking further falls.

He said: "We're certainly not looking to push sterling down."

He added: "We are moving to a properly valued exchange rate. I think we're probably there."

The Bank's outgoing governor, who hands over to successor Mark Carney in July, also said recovery "momentum" was building within and added the economy would even have grown last year by 1.5% if it were not for falls in construction and North Sea oil production.

"There is momentum behind the recovery that's coming. And I think that during the course of 2013 we will see the recovering come into sight," he said.

Lee McDarby, currency expert at Investec Corporate Treasury, said Sir Mervyn provided a much-needed boost for the pound.

"The comments look to have left a lot of market speculators, who have been in a rush to short sell sterling, with egg on their faces," he added.

PA