Sterling hit as Bank warns of long-term falls
STERLING fell sharply against the dollar and euro yesterday after the Bank of England warned of a long-term decline in the pound’s value.
In its Quarterly Bulletin, the central bank yesterday said that foreign investors may be rethinking their long-term affinity with pumping money into sterling-denominated investments.
The UK has run current account deficits since the 1990s and international investment is required to bridge the gap. The pound yesterday fell as far as €1.1016 and $1.6134, its lowest levels since April.
“The financial crisis may have led overseas investors to reassess their willingness or ability to purchase sterling assets and thereby finance the UK trade deficit,” the bank said.
And a wider shift in the economy could also cause the recent falls in the pound’s value to be longer-lived.
“It is possible that sterling’s depreciation may be part of a more prolonged process of rebalancing of the UK economy, generating a fall in the long-run sustainable real exchange rate.” The value of sterling has dived as the government has launched giant stimulus measures to fight the financial crisis that many fear will leave the nation crippled with debt.