Pound to stay weak 'for some time'

The newest policymaker at the Bank of England warned today that the pound will have to remain weak for some time to rebalance the economy towards exports.

Ben Broadbent, who joined the Bank's Monetary Policy Committee (MPC) in June, added he was "reasonably close" to voting for increasing the Bank's quantitative easing programme, a move which in itself would lower the value of the pound.

Sterling has lost around 30% of its value against the US dollar since the financial crisis as the impact of recession, low interest rates and quantitative easing all depreciated the currency.

A weak pound can hit households as the cost of imports are relatively higher and travelling abroad becomes more expensive, however UK exporters will benefit as the value of their products becomes more attractive to overseas buyers.

The pound dropped against the US dollar and euro following Mr Broadbent's speech at Canary Wharf in London before recovering to stand at 1.55 and 1.14 respectively.

Mr Broadbent, a former economist at investment bank Goldman Sachs, said export growth and overall productivity will remain sluggish for as long as the banking system is in "poor health" so the pound's exchange rate will have to "remain weak for some time to come".

In comments which support an argument in favour of further QE, Mr Broadbent said the international environment was "clearly disinflationary" which would offset the impact a weak pound has on inflation.

He said the rate of inflation would be held back by "slow growth in the United States, the sovereign debt crisis in the Eurozone and its knock-on effects on the cost of finance for UK and European banks".

A dismal economic outlook and moderating price pressures have seen the monetary policy debate shift away in recent months from interest rates and back to increasing QE - injecting cash into the economy to stimulate growth - from its current level of £200 billion.

Global growth fears are being fuelled by the ongoing euro-zone debt crisis, cracks emerging in the US economy and soft manufacturing, services and trade figures in the UK.

Howard Archer, chief UK and European economist at IHS Global Insight, said Mr Broadbent's speech supported mounting expectations that the Bank will fire up the money-printing presses in the near future.

Mr Archer said the Bank could boost its QE stock as early as October but a November move is more likely.

He said: "While we currently favour a move in November, it is very possible that the Bank could act at the conclusion of the October MPC meeting if UK data over the next couple of weeks show further weakness and the global economic environment fails to show any signs of improvement."

PA