Brexit: Sterling hits new lows, Bank of England slashes banks' capital requirements
Published 05/07/2016 | 10:51
Sterling plunged to new lows against both the dollar and the euro on Tuesday as the UK's decision to leave the European Union continues to batter investor confidence in the country.
The move came as the Bank of England announced moves to help boost lending by up to £150bn (€177bn) as it warned over a "challenging" outlook for financial stability after the Brexit vote.
It has slashed funding rules for banks as part of measures to shore up the economy and financial system in the wake of the referendum and said it "stands ready to take any further actions" if needed.
The pound plunged to 1.3117 dollars, down 12% since the Brexit vote and hitting a 31-year low. Sterling also fell to its weakest level against the euro since 2013 at 1.1787 euros.
The currency was dented after data showed Britain's dominant services sector slipped back last month as Brexit uncertainty intensified.
The closely-watched Markit/CIPS services purchasing managers' index (PMI) recorded a worse-than-expected 52.3 in June, down from 53.5 in May and below economist expectations of 52.8.
Measures by the Bank of England to help prop up the British economy, which include relaxing funding rules for banks to boost lending by up to £150 billion, failed to buoy the pound.
Lukman Otunuga, analyst at FXTM Research, said: "Sterling was left vulnerable to losses during trading this week following the dismal UK construction PMI for June which rekindled concerns over a possible slowdown in domestic economic momentum.
"This disappointing data comes at a time when the ongoing Brexit uncertainty and global instabilities have exposed the UK economy to downside risks.
"Concerns are elevated over a possible Brexit-fuelled recession and with expectations mounting of a probable UK interest rate cut, pound weakness could be the recurrent theme in the global currency markets.
"It should be kept in mind that the persistent post-Brexit uncertainty has haunted investor attraction towards the Sterling consequently sabotaging any real recovery in value."
The Bank of England unveiled the measure in its twice-yearly Financial Stability Report, which cautioned over the impact of the vote.
It said: "The current outlook for financial stability is challenging.
"There will be a period of uncertainty and adjustment following the result of the referendum. It will take time for the UK to establish new relationships with the EU and the rest of the world."
But it said that, despite a severe hit to the pound and falls of up to 20% for bank shares since the referendum, the banking sector has so far proved resilient, with little sign so far of a credit squeeze.