Pound falls on BoE cut in growth forecast

Thursday 11th August 2011

Good morning. Sterling fell yesterday after the Bank of England cut it’s growth forecast. This pushed the Pound down against other currencies. Against the Euro, Sterling gained slightly due to rumours the credit rating of French banks may be at risk. At 08:30am this morning rates are as follows:

• GBP/EUR 1.1351

• GBP/USD 1.6162

• GBP/AUD 1.5774

• GBP/NZD 1.9746

• GBP/CAD 1.6003

• GBP/ZAR 11.585

• GBP/JPY 123.86

• GBP/DKK 8.4564

• GBP/NOK 8.9185

• EUR/USD 1.4234

Bank of England cut growth forecast

The Bank of England has cut its UK growth forecast for 2011 from 1.8% to about 1.5%, warning that the “headwinds are growing stronger by the day”. Bank governor Mervyn King said Europe’s debt crisis and fears of contraction in the US overshadowed the world economy.

The Bank’s report was compiled before the latest meltdown on financial markets, and Mr King acknowledged that “the mood in markets has taken a sharp turn for the worse”. Some analysts believe the crisis in the markets will add to the Bank’s existing concerns.

“It is important to remember that the report itself was compiled before the recent market volatility and so the forecasts will not have reflected the recent plunge in equities and commodity prices,” said James Knightley, an economist at ING.

The news pushed Sterling down against other currencies and exchange rates fell.

French downgrade rumour weakens Euro

Despite Sterling falling against other currencies, against the Euro the Pound rose slightly on speculation that France could be the next triple A-rated sovereign to suffer a downgrade. Ratings agencies have since states this is not the case, however this demonstrates how volatile the markets are at the moment, and even the slightest rumour is enough to significantly alter exchange rates.

Today’s Data

It’s a bit quieter today, with a report from the European Central bank the only thing likely to affect GBP/EUR. In the USA there are various jobless measures.

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