The pound sterling continues to fall

The pound continues to fall against the majority of the 16 most actively traded currencies yesterday after the publication of the minutes from the last Bank of England (BoE) Monetary Policy Committee (MPC) meeting revealed that the MPC voted to unanimously maintain UK interest rates at their historic low figure of 0.5%. The MPC also voted 6-3 against a proposal to increase the asset purchase program, commonly known as Quantitative Easing (QE) by £25 billion from £375 billion.

Together with recent data showing a sharper slowdown in UK inflation that had been anticipated gave rise to the idea that an extension of the QE program may be on the cards in the months ahead.

Mark Carney, the Governor of the Canadian Central Bank, will soon take over from Sir Mervyn King as the Governor of the BoE, beginning his five-year term at the start of July.

Yesterday also saw the publication of the latest report by the International Monetary Fund (IMF) into the UK economy. The IMF believes that the UK is a long way from recovery and needs to rebalance. Of note, the report raises concerns about the risk of “permanent damage to long-term growth” called on the government to bring forward measures such as spending on infrastructure and job skills or cutting corporation tax.

The IMF also urged the UK government to sell its stakes in the two ‘intervened banks’, Royal Bank of Scotland and Lloyds, “in a way that maximizes the value for taxpayers, strengthens confidence and competition in the sector, and minimizes outward spillovers”.

David Lipton, the IMF’s Deputy Managing Director said “Recent data suggest some improvement in economic and financial conditions, which is encouraging. But the United Kingdom has a long way to go. Investment has been persistently weak and unemployment, especially among young people, is high.”

Overnight, the US dollar strengthened against major currencies on hints that the Federal Reserve may start to taper its bond-buying programme in the months ahead. The Fed Chief, Ben Bernanke in testimony to the Senate yesterday suggested that the Fed could start to scale back its quantitative easing (QE) measures “in the next few meetings” if there is a sustained improvement in the economy but warned that the Fed would not scale back its asset purchase programme if it endangered the economic recovery. He added that the outlook remains uncertain amid high unemployment while inflation remains low.