Pound dips sharply against dollar amid rate cut rumours

THE British pound had its biggest one-day drop in a month against the dollar on speculation the Bank of England will reduce its benchmark rate from 3.75% on Thursday, cutting the return on pound-denominated deposits.

The British economy, Europe’s second-largest, grew at the slowest pace in more than a decade in the first quarter as consumer spending slowed and manufacturing contracted. British manufacturing production fell 2.1% in May from the same period a year before, and 0.2% from April, a report showed.

The possibility of a cut this week is “a real near-term risk to the pound”, said Aziz McMahon, a currency analyst at ABN Amro in London. The market is split over the likelihood of a reduction, with ABN Amro expecting BOE policy makers to lower the key rate in August, he said.