British currency seen hitting three-decade low

Latest Update: August 4, 2016 | 217 Views

LONDON: The slide of Britain’s pound against the dollar since Britons voted to quit the European Union is not over, according to a Reuters poll on Wednesday that also predicted the currency would fall to a level not seen in over three decades.

It is also only expected to nudge up slightly by this time next year.

In the five weeks since Britons voted on June 23 to leave the EU the pound has sunk about 10 per cent – as predicted in a poll of the same strategists ahead of the vote. They say it is now set to fall another roughly 6pc.

Sterling is currently trading around $1.33, but according to the median forecast from an extra question in the poll of over 50 foreign exchange strategists taken in the last few days, the pound will fall as low as $1.25 this year.

While there is no official data available yet on how the economy has fared since the vote, business surveys have suggested Britain’s economy is shrinking at its fastest rate since the 2008-09 financial crisis, making a Bank of England rate cut on Thursday almost certain.

With a July Reuters poll suggesting the economy faces a 60pc chance of recession in the coming year, the Bank is almost unanimously expected to announce a cut to interest rates when it reveals its latest policy decision on Thursday.

Britain should also expand fiscal policy to stimulate its economy as the Bank’s tools have largely reached their limits and are likely to be less effective than in the past, two former BoE policymakers said on Tuesday.

Before the unexpected referendum result, speculation was about when the Bank would tighten. Looser policy will further damage the pound’s strength and in a month’s time it is forecast to be worth $1.30, $1.26 in three and six and $1.27 in a year.

Those predictions are weaker than in a poll taken just after the referendum and are sharply lower than those in a survey before the vote. That said the pound would be worth $1.50 in a year, but was based on the widespread assumption the vote would be to remain in the EU.

After leaving policy unchanged last month, the European Central Bank left the door open to further stimulus and a July Reuters poll suggested it would soon be forced to extend and expand the scope of its asset purchase programme.

So with both central banks loosening policy, sterling will hold pretty steady against the euro.

Ahead of the vote, one euro was only worth about 76.5 pence but is currently trading around 83.8p. In one month a euro will get you 84.7p, in six months 85.9p and in a year 84.4p, the latest poll found.



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