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Sterling teeters, is UK about to grind to a halt?

David Lamb
inflation

The Bank of England has been boxed into the role of hand-wringing bystander as sterling teeters and UK industry grinds ever closer to a halt. Contributor David Lamb, Head of Dealing – Fexco Corporate Payments, 

Hours after the PMI data confirmed that British manufacturers are cutting production at the fastest rate since 2012, the Bank has once again balked at the chance to stimulate the UK’s Brexit-addled economy with a rate cut.

With inflation already at the Bank’s 2 percent target and the slumping Pound piling on extra inflationary pressure by the day, the Bank is still unwilling to pull the ripcord on monetary stimulus.

Conventional wisdom dictates that central banks need to keep ahead of the curve, pulling their monetary levers in good time to soften the impact of economic headwinds.

With the UK economy slowing badly and the risk of a chaotic ‘no deal’ Brexit rising fast, this would typically be the moment to stimulate Britain’s flagging growth. The Bank even estimates that the UK now has a one in three chance of plunging into a recession.

Meanwhile the plunging Pound is the author of its own weakness. By pushing up inflation it has paradoxically prevented the Bank from giving the economy the break it needs.

Despite today’s rate hold, the grimness of the Bank’s growth and inflation forecasts have kept sterling on its downward trajectory, and it continues to languish at a two and half-year low against the Dollar.”

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