Rate cut could be bad for the pound

3 December 2008

The cost of buying a home abroad will rise further if the UK pound's value is further devalued against major foreign currencies, due to an interest rate cut tomorrow.
 
Currently at 3%, the Bank of England is expected to drop rates by between 0.5% and 1%, while the European Central Bank is expecting a 0.5% reduction, although markets have priced in a 0.75% cut.

Nick Fullerton, managing director of FC Exchange says: “While the highly anticipated interest rate cut will hopefully filter through and be passed on by banks to consumers, an already-low pound will face more pummelling. Dovish tones and a wave of negative data have done sterling no favours.

"Some financial leaders believe that the viability of a small floating currency is not sustainable in the current climate and the UK will renege its currency and join the Euro.  The fractious nature of the Eurozone has been highlighted of late though, and there are numerous other factors at play, we are way off joining the Euro. However this misplaced chatter is arguably strengthening the Euro against Sterling.”