Sterling falls as Bank of England signals more stimulus is possible

The pound fell the most in more than two weeks as Bank of England policymakers signalled further monetary easing is possible amid economic uncertainty after the UK voted to leave the EU.

Sterling halted a five-day advance against the dollar after reports showing declines in UK house prices and manufacturing output highlighted lingering risks in the aftermath of the Brexit decision.

Members of the Monetary Policy Committee, including governor Mark Carney, testified before UK politicians following the Bank of England’s decision to boost stimulus in August.

Mr Carney stood by the actions, while colleague Kristin Forbes said there may be a case for additional easing in the future.

Committee official Gertjan Vlieghe cited a widening output gap and a rise in unemployment in his assessment.

“Carney is sticking to the Bank of England’s assessment of the economy and the view that, if the economy evolves in line with forecasts, they may have to ease again,” said Valentin Marinov, head of Group-of-10 currency strategy at Credit Agricole’s corporate and investment-banking unit.

“He is looking through the more recent positive data surprises and expects more weakness ahead. I would not buy sterling at these levels,” he said. The pound fell 0.7% to $1.3352 in London trade, the steepest decline since August 19, and slid 0.5% to 84.21p against the euro.

Reports showed U.K. home prices fell 0.2% last month and manufacturing fell a bigger-than-forecast 0.9% in July.

The data will temper optimism about the resilience of the economy following a recent set of positive surveys which showed that the UK was weathering the fallout from Brexit.

While the currency has gained about 2% against the dollar in September, it’s still down 10% against the US currency since Britain voted in June to leave the world’s biggest trading bloc.

Meanwhile, prime minister Theresa May wants to make Britain a global leader in trade after Brexit, but former negotiators say the country faces a long slog despite warm words from some world leaders over forging new relationships.

With other countries reluctant to get involved in detailed discussions until Britain’s future ties with the EU are clear, and a lack of negotiators in London ready to begin talks, any firm deals could be years away.

“Nobody with any sense from China, the US, Brazil or wherever is going to engage with the UK other than a friendly drink in the bar until the UK has a regime with the EU,” retired British trade negotiator Roderick Abbott told Reuters.