Wednesday 18 October 2017

Pound tumbles on weak car sales data and scepticism over UK interest rate hikes

The pound was near its lowest level against the US dollar in more than three weeks.

New cars
New cars

By KalyeenaM

The pound took a tumble on Thursday amid a cocktail of bad news including weak car sales data and S&P comments questioning whether the UK economy could handle an interest rate hike.

Sterling was hovering near its lowest level against the US dollar in more than three weeks, trading lower by 0.35% in morning trading at 1.319.

The currency experienced similar declines against the euro, down nearly 0.5% at 1.12.

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Sterling chart

It gave a slight boost to the FTSE 100, which was up 0.2% or 15.74 points at around 7,483.38, as many of its listed multinational stocks tend to benefit when foreign currencies are stronger.

Connor Campbell, a financial analyst at SpreadEx, said: “After a brief respite on Wednesday, thanks to that better-than-forecast UK services PMI, sterling has resumed its October slide this Thursday.

“While there was nothing concrete driving the pound lower, there was plenty of news to chip away at the currency’s confidence.”

The UK currency fell sharply in anticipation of poor car sales figures, which ended up showing a 9.3% drop compared with the same month last year and marked the sixth consecutive month of declines.

The Society of Motor Manufacturers and Traders (SMMT) blamed it on a fall in consumer confidence caused by economic and political uncertainty, and confusion over air quality plans.

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Bank of England

The disappointing data compounded suggestions by ratings agency S&P that the UK is not ready for a series of interest rate hikes by the Bank of England, starting next month.

In a research note, S&P said: “Overall, we believe the Bank and (governor) Mark Carney’s recent statements are primarily aimed at propping up sterling to reduce imported inflation pressures.

“This strategy may include an actual 25 basis point hike in November, thus bringing the policy rate back to where it was before the Brexit referendum.

“Additional moves in 2018 do not appear warranted on the back of a slowing economy.”

Mr Campbell also pointed to comments from Bank of England deputy governor Sam Woods, who argued that a transition deal would have to be agreed with the EU before Christmas to avoid a string of firms triggering Brexit contingency plans.

Mr Campbell said: “Add on top of all this Brexit – just, like, in general – and it’s not hard to see why sterling is continuing to give back chunk after chunk of September’s surge.”

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