Sterling drops as risks to UK economy stack up

There’s no respite for sterling.

Britain’s currency has fallen every day this week against the dollar, and touched its lowest level since 2010 yesterday.

Sterling also reached its weakest in almost three months against the euro.

Chancellor of the exchequer George Osborne said a “dangerous cocktail” of global threats face the British economy this year and warned against complacency.

Those perils were highlighted this week by turmoil in China, which hit global markets and led billionaire George Soros to warn the current environment has similarities to the financial crisis in 2008.

Manufacturing and services data that missed economists’ estimates this week signalled the UK’s domestic economy was faltering, and this may result in the Bank of England keeping its benchmark interest rate unchanged for longer.

Markets are not fully pricing in a quarter-point increase to the Bank of England’s 0.5% main rate until after February 2017, while ING Bank and Goldman Sachs have this week both pushed calls for a Bank of England rate increase to the last quarter of 2016 from previous estimates of the second quarter.

“Sterling is everyone’s favourite currency to sell at the moment,” said Neil Mellor, a senior foreign- exchange strategist at Bank of New York Mellon.

“You have economic news veering on the more negative side, then you have Osborne talking about all the various shocks the UK faces and the Brexit debate.

“It is hard to refute the fact that is definitely on the radar now,” he said, referring to a potential British exit from the EU.


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